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UNIVERSITY  OF  CALIFORNIA. 

Received, ^.t.Sjs!lSCfl^---., 

Accessions  No^C&.'£/.&      Shelf  No. 


RAILWAY  TARIFFS 


AND  THE 


INTERSTATE  COMMERCE  LAW 


BY 


EDWIN   R.  A.  SELIGMAN,  PH.D. 

SCHOOL  OF  POLITICAL  SCIENCE, 
COLUMBIA  COLLEGE 


Reprinted  from  Political  Science  Quarterly  ',  Vol.  //.,  Nos.  2  and  3. 


GINN  &  COMPANY 

BOSTON,  NEW  YORK,  AND  CHICAGO 
1887 


RAILWAY  TARIFFS 


AND  THE 


INTERSTATE  COMMERCE  LAW 


BY 


EDWIN   R.  A.  SELIGMAN,  PH.D. 

SCHOOL  OF  POLITICAL  SCIENCE, 
COLUMBIA  COLLEGE 


Reprinted  from  Political  Science  Quarterly  ',  Vol.  //.,  Nos.  2  and  3. 


'     : 


GINN  &  COMPANY 

BOSTON,  NEW  YORK,  AND  CHICAGO 
1887 


TABLE    OF    CONTENTS, 


PAGE 

Nature  of  the  railway •  i 

The  principle  of  tariffs 2 

Fixed  charges  versus  operating  expenses 3 

Cost  of  service  theory -4 

Charging  what  the  traffic  will  bear 8 

Classification 9 

Its  legitimacy .11 

The  abuses 12 

Advisory  boards       .        .        .        .        .        .        .        .        .        •  13 

Discrimination 14 

Personal  discrimination  >. 15 

Allowance  for  quantity    .".*'. 16 

Wholesale  principle          .        .        . i? 

Local  discrimination 19 

Its  legitimacy 20 

Pro  rata  charges .21 

Value  of  service  principle       .........  23 

Not  new 23 

Analogy  to  principles  of  taxation 25 

Doctrine  of  compensation 28 

Preferential  versus  differential  rates 29 

The  three  forms  of  differential  rates 30 

New  rates  below  additional  movement  expenses      .         .        .        .30 

Other  differential  rates 31 

Geographical  advantages 31 

Interests  of  consumers 32 

Distinction  between  personal  and  local  discriminations          .         .         .  32 

The  abuses 33 

The  short  haul  system  .                                   34 

Limitations  on  the  principle    ........  35 

Short  haul  laws  in  the  commonwealths 36 

Short  haul  laws  in  Europe 38 


TABLE  OF  CONTENTS. 

PAGE 

The  short  haul  clause  in  the  interstate  commerce  law  .        .        .        .41 
Dangers  of  strict  interpretation       . 42 


II. 

The  anti-pooling  clause  of  the  interstate  commerce  law       .  .43 

The  doctrine  of  free  competition 43 

Economic  or  industrial  monopolies 45 

Are  combinations  an  evil?     .........  46 

Competition  in  railways  illusory 48 

Seven  forms  of  combination 49 

Agreement  to  make  equal  rates 50 

Working  arrangement      .........  50 

Division  of  the  field  or  territorialization 50 

Division  of  the  traffic 52 

Division  of  the  earnings 52 

Advantages  of  pools        .......... 

Stability  of  charges 52 

Lessening  of  personal  discriminations 53 

Money  pools  and  traffic  pools  in  the  United  States      .        .        .        -55 

Net  money  versus  gross  money  pools 56 

Pools  in  Europe .        .        -57 

England.    Joint  purse  arrangements 57 

Germany.     Kartellen        .........  59 

Austria  and  Belgium 60 

France.     Division  du  traffic     ........  61 

Other  European  countries 61 

Dangers  of  pools    .         .         .         .         .         .         ...         .         .         .62 

Pooling  does  not  prevent  healthy  competition 63 

Abolition  of  pools  would  result  in  final  consolidation   .         .         .         .  63 

Differential  pools 65 

Mistake  of  the  interstate  commerce  law 65 

Senate  select  committee 67 


Competition  of  carriers  on  the  line 68 

History  of  the  system .        .68 

Objections  to  the  project 70 


TABLE  OF  CONTENTS. 

PAGE 

Separation  of  traction  and  carrier 72 

Running  powers  or  compulsory  competition  .         .         .  .         -74 

Water  competition 75 

The  interstate  commerce  commission 77 

English  Commissions 78 

Railway  commission  of  1873 79 

Its  defects        .        . 80 

Railway  legislation  in  the  United  States        .        .        .        .        .        .81 

The  granger  movement 82 

Compulsory  commissions          ........  83 

Advisory  commissions      .........  83 

The  federal  commission 84 

Conclusion 85 

Good  features  of  the  law        .        . 85 

Error  of  anti-pooling  clause 86 

Dangers  of  the  short  haul  clause 86 

Probable  results 87 


, 


RAILWAY  TARIFFS  AND  THE   INTERSTATE 
COMMERCE   LAW. 

WHEN  Solomon  de  Cause  first  advanced  the  idea  of  em- 
ploying steam  as  a  propelling  power,  in  1615,  he  was 
shut  up  in  the  mad-house  as  a  hopeless  maniac.  Two  centuries 
later,  in  1812,  when  Colonel  Stevens  of  Hoboken  proposed  to 
build  a  steam  railway  at  far  less  cost  than  the  projected  Erie 
canal,  he  was  regarded  as  absurdly  visionary  and  somewhat  de- 
mented. And  yet  to-day,  within  the  short  span  of  a  human 
life,  we  have  the  vast  network  of  over  three  hundred  thousand 
miles  of  iron  roads  covering  the  civilized  world.  It  is  the  cen- 
tral factor  of  recent  economic  development.  Little  wonder, 
then,  that  the  weighty  problems  of  railway  management  in  its 
relations  to  the  owners,  the  employees,  and  the  public,  should 
engross  the  earnest  attention  of  legislators  and  publicists 
throughout  the  world. 

The  Interstate  Commerce  law  of  1887  is  the  first  serious 
attempt  at  governmental  regulation  for  the  whole  of  the 
United  States.  It  may  be  well,  therefore,  to  discuss  the  pro- 
visions of  the  act  in  the  light  of  general  principles.  We  shall 
confine  ourselves  primarily  to  a  consideration  of  the  railway 
tariffs,  and  attempt  to  ascertain  the  underlying  doctrines  and 
their  limitations. 

Railway  tariffs  may  be  regarded  from  two  essentially  different 
standpoints,  — the  private  and  the  public.  In  so  far  as  a  rail- 
way is  a  business  corporation,  it  is  a  private  matter.  It  may  fix 
its  prices  in  accordance  with  general  business  principles.  It 
will  endeavor  to  subserve  primarily  the  interests  of  its  owners. 
It  will  strive  for  the  greatest  possible  profits.  Its  course  is 
legitimate  and  praiseworthy.  But  in  so  far  as  the  railway  forms 
our  public  highway,  it  is  a  public  matter.  The  objective  point 
now  is  the  general  welfare,  the  interests  of  the  community.  It 


2  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

aims  not  at  the  greatest  possible  profits,  but  at  the  greatest 
possible  benefits.  It  looks  not  at  the  interests  of  its  owners, 
but  at  the  interests  of  the  public.  The  one  point  of  view  is 
individual,  the  other  is  social.  The  modern  railway  corporation 
shares  both  these  characteristics.  Its  nature  is  hybrid.  To 
subordinate  the  public  to  the  private  element  is  plainly  inadmis- 
sible. To  entirely  engulf  the  private  in  the  public  element  is 
equally  unfair,  as  long  as  the  railway  is  not  owned  by  the  state. 
Given  the  private  corporation,  the  question  is :  How  shall  the 
two  elements  be  reconciled  ?  It  is  the  problem  of  railway  legis- 
lation and  corporate  regulation. 

The  inequality  of  railroad  charges  forms  the  pith  of  the  com- 
plaints usually  made.  It  is  the  crucial  point  of  corporate 
management.  On  the  one  hand  we  have  the  anti-monopolists, 
who  liken  the  common  carriers  to  the  feudal  barons  of  old, 
using  the  mediaeval  weapons  of  unjust  privilege  and  ill-gotten 
power  to  carry  out  their  ends  of  rapacity  and  favoritism.  On 
the  other  side  we  have  the  railway  managers,  who  exultingly 
exclaim,  in  so  far  as  charges  are  concerned :  All  that  is,  is  just. 
Where  now  is  the  truth  of  the  matter  ? 

The  principle  commonly  advanced  by  the  antagonists  of  the 
railways,  as  well  as  by  the  would-be  reformers,  is  that  of  cost  of 
service.  Charges  should  be  regulated  in  accordance  with  the 
cost  of  the  particular  transaction  to  the  company.  This  is  cer- 
tainly not  the  actual  method.  Is  it  the  correct  method  ?  Let 
us  see. 

Railway  expenses  are  divided  into  two  great  classes, — 
fixed  charges  and  operating  expenses.  By  fixed  charges  is 
simply  meant  the  interest  account,  the  sum  necessary  to 
meet  the  periodically  recurring  interest  on  the  mortgage  debt.1 

1  In  Europe,  not  only  the  interest  on  the  funded  debt,  but  also  the  dividends  on 
the  capital  stock  are  sometimes  included  in  the  "  fixed  charges."  This  is  manifestly 
fallacious,  as  it  is  not  legitimate  to  class  as  expenses  what  are  really  profits.  Rates  are 
nowhere  determined  by  the  prospective  profits,  but  vice  versa.  Cf.  Ndrdling,  Die 
Selbstkosten  des  Eisenbahntransports  und  die  Wasserstrassenfrage,  (Vienna,  1885,) 
S.  206-210.  The  matter  is,  however,  of  less  importance  from  the  fact  that  with  us 
railways  are  generally  constructed  on  the  proceeds  of  the  mortgage  bonds,  not  of  the 
capital  stock,  as  in  Europe.  The  interest,  hence,  far  exceeds  the  dividends.  In  1885, 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  3 

The  proportion  of  fixed  charges  to  operating  expenses  varies, 
of  course,  with  each  line.  A  careful  calculation  on  the  different 
branches  of  a  single  road  found  the  interest  charges  to  vary 
from  26  per  cent  to  59  per  cent  of  the  total  expenses.1  But  in 
a  rough  way  it  may  be  said  that  fixed  charges  amount  to  from 
forty  to  fifty  per  cent  of  the  entire  expenditures,  not  alone  with 
us,  but  also  in  Europe.2  In  other  words,  well-nigh  half  the 
expenses  are  constant  or  invariable.  They  do  not  change  with 
the  amount  of  business  transacted,  but  are  independent  of  the 
traffic.  They  remain  the  same  whether  there  be  much,  little, 
or  no  additional  traffic. 

On  the  other  hand,  the  operating  expenses  may  be  divided 
into  several  categories.  No  uniformity  has  as  yet  been  at- 
tained in  the  classification  of  expenses,  although  the  national 
commission  has  been  empowered  to  prescribe  a  uniform  system. 
One  method  is  to  divide  the  expenses  into  :  (a)  maintenance 
of  road,  buildings,  and  general  expenses  ;  (b)  station  expenses  ; 
and  (c)  movement  expenses.  Class  a  will  in  general  be  but 
very  slightly  affected  by  the  amount  of  business  transacted. 
Considerable  variations  in  the  traffic  may  take  place  without  a 
proportionate,  if  any,  increase  in  the  expense  involved.  They 
may  therefore  likewise  be  set  down  as  constant  or  invariable  ex- 
penses. Class  b  will  vary,  but  only  in  part,  with  the  business 
transacted.  A  certain  organization  must  always  be  maintained, 
whether  the  traffic  be  heavy  or  light ;  but  after  a  definite  limit 
is  passed,  more  men  must  be  employed  to  do  more  business. 
These  expenses  are  thus  only  partially  constant.  Class  c, 
finally,  fluctuates  almost  in  proportion  to  the  business  trans- 
acted. The  less  trains,  the  less  expense. 

The  proportion  of  each  of  these  three  classes  to  the  whole  will 

eg.,  1 86  million  dollars  were  paid  in  interest,  77  millions  in  dividends.  Cf.  Poor's 
Manual  for  1886,  p.  i.  For  European  figures,  see  Loisel,  Annuaire  special  des  chemins 
de  fer  beiges,  1886,  pp.  246  et  seq. 

1  Fink,  Cost  of  Railroad  Transportation  (1882),  table  A,  p.  4,  for  the  Louisville 
and  Nashville  Railroad. 

2  See  the  tables  in  Sax,  Die  Verkehrsmittel  in  Stats-  und  Volkswirthschaft,  (1879), 
Bd.  II,  S.  368.     For  France  in  particular,  Baum,  Annales  des  ponts  et  chaussees, 
Memoires,  5me  serie,  t.  i,  p.  422, 


4  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

of  course  vary  with  the  widely  different  characteristics  of  each 
line  ;  but  in  general  it  may  be  affirmed  that  about  one-half  of 
the  operating  expenses  are  constant  or  invariable.1 

The  total  constant  expenditures  of  a  railway  are  thus  the 
fixed  charges  plus  one-half  the  operating  expenses.  In  other 
words,  a  large  majority  of  railway  expenses  are  irrespective  of 
the  amount  of  business.  They  remain  the  same,  notwithstand- 
ing an  increase  or  decrease  of  the  traffic. 

This  distinction  between  constant  and  fluctuating  expenses 
is  of  vital  importance  to  a  correct  understanding  of  the  principle 
of  railway  rates.  It  leads  to  certain  conclusions  which  form 
the  fundamental  explanations  of  actual  tariffs. 

It  is  unnecessary  to  explain  the  wide  disparity  of  cost  of  car- 
riage on  different  lines,  or  for  individual  transactions.  Certain 
characteristics  affect  the  roads  themselves,  such  as  the  grades, 
the  curves,  the  weight,  and  speed  of  the  trains,  the  cost  of  con- 
struction, the  quality  of  the  supplies,  the  changing  conditions 
under  which  the  service  is  performed  at  different  seasons,  etc. 
These  alone  would  show  how  difficult  is  the  task  of  accurately 
determining  the  cost  of  carriage  for  any  one  service.  But  the 
task  is  complicated  by  other  difficulties.  It  is  apparent  that 
the  cost  of  transportation  per  ton-mile  must  vary  with  the  tons 
and  the  miles,  i.e.,  with  the  quantity  of  the  freight  and  the  length 
of  the  haul.  But  these  differ  widely  in  each  case.  On  one 
line  the  greater  portion  of  the  freight  is  carried  over  its  whole 
length ;  on  another  the  local  business  far  outweighs  the  through 


1  Manager  Haines,  of  the  Savan.  Fla.  &  W.  R.  R.,  divides  operating  expenses  into 
five  classes,  and  makes  a  careful  calculation  that  53  per  cent  of  such  expenses  do  not 
increase  with  additional  business.     Report  of  Senate  Select  Committee  on  Interstate 
Commerce  (1886),  App.,  p.  138.     We  shall  hereafter  speak  of  this  as  the  Cullom 
report. 

2  Mr.  Fink's  calculation  varies  but  slightly  from  the  above.     He  asserts  that  upon 
an  average  of  $1  earned  in  the  roads  of  the  United  States,  40  cents  are  required  to 
pay  4^£  per  cent  interest  on  bonds  and  stock,  35  cents  to  pay  the  movement  expenses, 
and  25  cents  to  pay  maintenance  and  general  expenses.     Cullom  Committee,  Test.,  p. 
95.     The  New  York  commission  divide  operating  expenses  into  maintenance,  general 
and  transportation  (including  station)  expenses.     But  the  result  is  the  same.     For 
Europe,  see  Ulrich,  Das  Eisenbahn-Tarifwesen  (1886),  S.  40,  but  corrected  as  to  Ger 
many  in  Archiv  fur  Eisenbahnwesen,  1887,  S.  253. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  5 

traffic,  so  that  the  capacity  of  the  rolling  stock  is  not  fully 
utilized.  On  one  line  the  traffic  moves  in  great  part  in  one 
direction,  and  the  number  of  empty  cars  returned  is  abnor- 
mally large ;  on  another  there  is  far  more  back-loading  and  a 
more  even  distribution  of  the  traffic.  On  one  line  the  trains  are 
started  with  full  loads,  on  another  they  are  half  empty.  The 
proportion  of  paying  to  dead  weight,  or  the  amount  of  the  tare,, 
is  of  paramount  importance.1  All  these  causes  influence  both 
the  tons  and  the  miles,  and  thus  affect  the  cost  per  ton-mile. 
Logically,  the  cost  per  ton-mile  is  resolvable  into  two  portions, 

—  that  which  corresponds  to  the  constant  or  fixed  expenses,  and 
that  which  corresponds  to  the  fluctuating  or  variable  expenses. 
The  former  portion  is  ascertained  simply  by  dividing  the  con- 
stant expenses  by  the  total  ton-miles.     It  will   therefore  vary 
inversely  to  the  traffic.2     But  as  the  constant  expenses  form  by 
far  the  larger  portion  of  the  whole,  the  rate  per  ton-mile  will 
be  determined  by  this   corresponding  portion.     We   conclude 
then  that  the  cost  tends  to  vary  almost  inversely  to  the  traffic 

—  the   more   traffic,  the  less  the  cost  per  ton-mile  ;   the  less 
traffic,   the   greater  the  cost   per   ton-mile.      That   is   to   say, 
even  if   it   were  feasible   to   construct  a  tariff  based   on   the 
cost   of   service   of   each   particular  transaction,  —  in   itself  a 
work    of    gigantic   magnitude    and    infinite    difficulty,  —  such 
a  tariff  would  be  of  very  slight    avail    unless  the  amount  of 
freight  remained  an  unalterable  quantity.     So  soon  as  the  vol- 
ume of  traffic  changes,  the  cost  of  service  is  necessarily  altered. 
The  rate  would  no  longer  be  based  on  cost  of  service. 

1  The  average  gross  weight  of  freight  cars  of  all  classes  in  the  United  States  is 
eight  tons  per  car.     The  average  load  they  carry  is  five  tons.     Hence,  59  per  cent  of 
the  weight    hauled  in  freight  traffic  is  non-paying  or  dead  weight.     In  passenger 
traffic  the  non-paying  load  is  almost  90  per  cent,  because  the  cars  are  not  so  fully 
packed.     In  Germany,  in  1880,  the  dead  weight  was:  for  freight  cars,  53  per  cent 
(or  taking  only  the  loaded  cars,  27  per  cent) ;  for  passenger  cars,  76  per  cent;  for 
baggage  cars,  97  per  cent. 

2  Suppose  the  constant  expenditures  for  transporting  seven  and  a  half  million  ton- 
miles  amount  to  $75,000.     Then  — 

if  there  are  7,500,000  ton-miles,  cost  =  7£$$$-Jhr  =  I  c.  per  ton-mile; 
if  there  are  10,000,000  ton-miles,  cost  =  T^>0o0<yW  =  0.75  c.  per  ton-mile; 
if  there  are  5,000,000  ton-miles,  cost  =  7£$$§{fo  =  I-SC-  per  ton-mile. 


6  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

Furthermore,  the  amount  of  traffic  itself  depends  to  a  large 
extent  on  the  rate.  Low  rates  produce  large  traffic,  high  rates 
make  little  traffic.  This  has  led  to  the  paradoxical  conclusion 
that  cost  of  service  depends  on  the  rate,  and  not  inversely  that 
the  rate  depends  on  cost  of  service.  We  thus  have  a  curious 
interaction  of  cause  and  effect.  But  of  course  this  is  true 
only  within  certain  limits,  and  subject  to  serious  qualifications. 
The  success  of  a  decrease  of  rates  in  attracting  additional  busi- 
ness will  operate  only  up  to  that  point  where  increased  traffic 
does  not  imply  disproportionately  increased  expenses.  If  the 
additional  business  necessitates  large  expenses,  like  a  double 
track,  it  may  cost  more  than  it  is  worth.  Low  rates  do  not 
always  increase  net  profits.  Again,  the  success  of  a  decrease 
of  rates  will  diminish  with  every  successive  diminution  of  the 
rates.  There  is  a  certain  limit  beyond  which  the  efficacy  of 
reduced  rates  as  a  financial  venture  becomes  very  problematical. 
The  business  is  not  expansible.  On  this  account  the  railways 
rarely  reduce  charges  simultaneously  on  all  kinds  of  traffic,  but 
experiment  gradually  with  special  classes  or  kinds  of  business, 
and  even  then  are  often  unwilling  to  undertake  the  reduction 
at  all.1 

But  if  it  is  even  partially  true  that  cost  of  service  depends  on 
the  traffic,  and  therefore  on  the  rate,  it  cannot  be  wholly  true 
that  the  rate  depends  on  the  cost  of  service.  The  two  princi- 
ples are  mutually  contradictory.  We  are  thus  logically  forced 
to  the  conclusion  that  railway  charges  are  not  and  cannot  be 
based  on  cost  of  service  alone. 

Cost  of  service  does  not  fix  rates.  It  forms  in  the  long  run 
only  the  minimum  limit  of  rates.  A  well-managed  road  will  not 
consciously  continue  a  losing  business,  unless,  indeed,  it  be 

1  In  regard  to  freight  traffic,  the  above  statement  is  notoriously  true.  In  regard 
to  passenger  traffic,  cf.  the  history  of  third-class  traffic  in  England.  In  1844  the  rail- 
ways had  to  be  compelled  by  law  to  run  cheap  trains  for  third-class  passengers,  their 
opposition  being  silenced  only  by  exempting  these  trains  from  the  passenger  duties. 
But  before  long  these  very  trains  resulted  in  immense  profits,  and  to-day  constitute  by 
far  the  most  lucrative  portion  of  the  passenger  business.  Cf.  also  the  strenuous  oppo- 
sition of  the  New  York  elevated  railroad  to  the  five-cent  bill,  while  to-day  the  profits 
are  immensely  increased  by  the  voluntary  reduction. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  J 

operated  by  the  state  as  a  tax  on  the  community,  and  no  serious  ' 
thinker  has  yet  proposed  this  method  of  running  railways.  Dif- 
ferences in  cost  of  service  between  two  roads  result  not  in  pro- 
portionate differences  in  rates,  but  simply  in  different  profits. 
Differences  in  cost  cannot  imply  corresponding  differences  of 
rates.  The  principle  is  as  applicable  to  portions  of  the  same 
line  as  to  different  lines,  since  no  two  parts  of  the  same  line 
have  the  same  cost  of  service,  and  hence  if  the  principle  were 
consistently  applied,  it  would  be  necessary  to  make  a  different 
rate  for  each  mile  of  every  road,  which  is  absurd.  But  if  rates 
are  fixed  according  to  the  average  cost  of  service  for  the  whole 
line,  they  may  equally  well  be  fixed  for  the  average  cost  of  ser- 
vices on  all  business,  in  which  cases  the  element  of  difference 
of  cost  for  each  particular  transaction  is  entirely  eliminated. 
No  freight  is  ever  shipped  at  the  average  cost  of  service. 

It  would  hence  be  foreign  to  our  purpose  to  attempt  an  exact 
mathematical  computation  of  the  cost  of  service.  Not  only 
would  it  be  necessary  to  ascertain  the  exact  percentage  of  fixed 
to  variable  expenses  in  each  particular  case,  but  further  to  cal- 
culate the  exact  proportion  of  increase  of  cost  to  increase  of 
traffic.  Numerous  endeavors  have  been  made,  but  no  two  agree.1 
And  even  if  successful  they  would,  as  we  see,  be  of  very  slight 
practical  utility. 

The  cost  of  service  principle  is  neither  practised  nor  practi- 
cable. The  attempt  to  base  rates  solely  in  cost  is  a  pure  chi- 
mera. Well-nigh  every  expert,  whether  scientist,2  official,  or 
legislator,  and  every  parliamentary  commission,  from  the  early 
English  to  the  late  Italian  and  American,  absolutely  discards  it 
as  a  principle.3  But  although  the  rule  is  impracticable,  it  is 


1  Cf.  the  works  of  Chanute,  Morehouse,  Fink,  Kirkman,  in  America;   of  Fairbairn, 
Gordon,  Lardner,  in  England;   of  Garke,  Scheffler,  Schuller,  Schiibler,  Nordling,  in 
Germany;   of  Baum,  Jacqmin,  Gournerie,  Briere,  in  France;   of  Brioschi,  Genala,  Cal- 
vori,  in  Italy. 

2  Even  Wagner,  the  great  apostle  of  state  railways,  comes  to  the  same  conclusion 
in  his  last  edition.     Finanzwissenschaft,  3.  Ausg.,  I,  760-763. 

"  The  movement  of  a  commodity  by  rail  is  determined  by  considerations  wholly 
independent  of  and  not  affected  by  the  cost  of  the  service  to  be  performed."  Cullom 
Com.  Rep.,  p.  184.  For  Italy,  cf.  Atti  della  Commissione  d'  Inchiesta  sull'  esercizio 


8  POLITICAL  SCIENCE  QUARTERLY.  '  [VOL.  II. 

asserted  by  some  to  be  the  only  just,  the  ideal  method.  Before 
discussing  this,  let  us  ascertain  the  actual  principle  according  to 
which  tariffs  are  arranged.  Only  then  shall  we  be  able  to  answer 
the  question  of  the  relative  justifiability  of  the  two  principles. 

How,  then,  are  rates  actually  fixed  ?  The  object  of  a  railway 
is  to  make  the  greatest  possible  net  profits,  i.e.,  to  increase  its 
traffic  and  to  decrease  its  expenses.  This  it  finds  can  be  best 
attained  by  lowering  the  charges  on  certain  classes  of  goods,  or 
on  the  same  classes  to  different  localities.  In  other  words,  what 
decides  the  manager  is  not  so  much  the  cost  of  the  service  as 
the  value  of  the  service.  This  practice  has  been  called  "charg- 
ing what  the  traffic  will  bear,"  an  unfortunate  expression  and 
liable  to  much  misconception.  Charging  what  the  traffic  will 
bear,  correctly  understood,  simply  serves  as  an  excuse  for  reduc- 
ing rates  on  the  low-class  traffic,  because  it  cannot  bear  higher 
rates.  The  phrase  is  a  bad  one,  because  it  may  be  interpreted 
into  meaning  that  the  greatest  possible  charges  on  high-class 
goods  are  also  legitimate.  Correctly  understood,  it  justifies 
lower  charges  on  certain  kinds  of  business ;  incorrectly  under- 
stood, it  seems  to  justify  extortionate  charges  on  other  kinds  of 
business.1 

Charging  what  the  traffic  will  bear,  in  its  strict  sense,  does 
not  fix  rates ;  it  determines  only  the  maximum  limit  of  charges, 
just  as  mere  cost  of  hauling  fixes  the  minimum  limit.  Between 
these  limits  the  rate  varies  with  the  value  of  the  service,  or,  as 
is  sometimes  said,  is  made  to  conform  to  the  requirements  of 
trade.  It  becomes  a  commercial  question,  and  subject  to  the 
law  of  supply  and  demand.  In  so  far  it  is  a  purely  private 

delle  ferrovie  italiane  (1881),  Parte  II,  Riassunto,  II,  932-953.  For  England,  cf.  Joint 
Select  Committee  on  Railway  Cos.  Amalgamation  (1872),  pp.  xxxiii  and  li.  For 
France,  see  Rapport  de  Waddington  (1880),  in  Picard,  Chemins  de  fer  francais, 
t.  5  (1884),  p.  128.  Cf.  also  the  statement  of  the  advisory  commission  on  differential 
rates  to  the  seaboard  (Thurman,  Washburne,  and  Cooley)  in  Proceedings  of  the  Joint 
Executive  Committee  (1882),  p.  29. 

1The  celebrated  phrase  of  M.  Solacroup,  the  French  railway  director,  is  hence 
regrettable :  "  En  matiere  de  tarification  de  transports  il  n'y  a  qu'une  seule  regie  qui 
soit  rationnelle;  c'est  de  demander  a  la  marchandise  tout  ce  qu'elle  peut  payer.  Tout 
autre  principe  est  arbitraire."  Professor  Villey  calls  it  "  une  phrase  vide  de  sens." 
Traite  d'economie  politique  (1885),  p.  206. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  9 

matter.  But  the  railway  is  also  partly  a  public  institution  :  hence 
the  necessity  for  important  qualifications  of  the  private  business 
principle,  for  serious  limitations  of  the  law  of  supply  and  de- 
mand. These  qualifications  and  these  limitations  have  often 
been  completely  ignored  by  the  railways,  because  of  their  mis- 
taken assumption  of  being  purely  private  enterprises.  Let  us 
study  the  limitations  as  well  as  the  principle. 

Charging  according  to  what  the  service  is  worth  results  in 
the  two  fundamental  principles  of  classification  and  discrimina- 
tion.1 Classification  is  due  to  the  fact  that  the  same  service  has 
a  varying  value  when  rendered  to  different  commodities.  Dis- 
crimination (i.e.,  local  discrimination)  is  due  to  the  fact  that  the 
same  service  has  a  varying  value  when  rendered  to  different 
places.  Whether  the  same  service  has  a  varying  value  for  the 
freight  of  different  persons,  and  may  thus  give  rise  to  personal 
discriminations,  is  a  question  to  be  treated  by  itself. 

Classification.  Value  of  service  influences  classification  in  a 
double  way :  it  puts  the  same  articles  into  different  classes  ;  it 
puts  different  articles  into  different  classes.  It  puts  the  same 
articles  into  different  classes  according  to  the  methods  of  trans- 
portation, and  makes  a  distinction  between  slow  and  fast  deliv- 
ery. With  us  this  takes  the  form  of  freight  and  express  traffic. 
Our  general  classification  applies  only  to  freight  traffic.  In 
Europe,  where  separate  express  companies  are  unknown,  the 
rates  are  graduated  according  to  this  distinction  —  goods  and 
parcels  rates,  petite  and  grande  Vitesse,  Frachtgut  and  Eilgut. 
Such  a  classification  is  of  course  perfectly  legitimate,  whether 
from  the  standpoint  of  value  or  from  that  of  cost  of  service.  The 
better  service  benefits  the  goods  and  increases  the  expenses  of 
the  railway. 

1  The  word  discrimination  is  not  always  used  in  the  same  sense.  Some  use  it  to 
imply  any  variation  from  the  cost  of  service,  and  make  it  include  classification,  which 
is  to  them  a  discrimination  between  articles  as  opposed  to  a  discrimination  between 
persons  or  places.  But  this  is  misleading.  A  classification  as  between  two  articles 
may  be  due  to  a  difference  in  cost  of  service,  in  which  case  there  would  be  no  dis- 
crimination in  the  above  sense.  To  make  classification  of  this  kind  a  part  of  discrimi- 
nation is  illogical.  It  is  far  preferable  to  separate  the  two  terms  completely,  defining 
discrimination  as  is  done  on  page  236, 


10  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

Far  more  important,  however,  is  the  classification  of  different 
articles  into  different  categories.  The  primary  element  here 
again  is  value  of  service.  Cost  of  service,  indeed,  influences 
classification  to  a  minor  extent  in  so  far  as  the  articles  differ  in 
bulk,  shape,  risk,  direction,  or  regularity  of  shipment.  By  bulk 
is  meant  the  proportion  of  dead  to  paying  weight.  One  car  may 
be  filled  with  2000  Ibs.  of  baskets,  another  with  30,000  Ibs.  of  iron 
or  sand,  and  yet  the  cost  of  moving  the  cars  may  not  appreciably 
differ.  Manifestly,  the  charge  per  100  Ibs.  on  baskets  should  be 
higher  than  on  iron  or  sand.  The  tare  becomes  an  important 
factor  of  the  cost.  Actual  computations  again  have  demonstrated 
that  the  shape  of  the  articles  influences  the  cost,  especially  the 
terminal  expenses,  far  more  than  might  at  first  appear.  The 
risk,  when  incurred  by  the  railway,  is  also  a  legitimate  ingredi- 
ent of  cost,  and  varies  greatly  with  the  nature  of  the  article. 
The  question  of  direction  involves  that  of  back-loading  and 
affects  articles  differently  on  each  particular  line.  Finally, 
some  articles  are  sent  intermittently  in  small  lots,  while  others 
are  shipped  with  great  regularity  and  in  such  quantities  that 
the  railway  can  easily  accommodate  itself  to  the  traffic. 
Every  shipment  has  its  own  peculiarities,  and  it  thus  hap- 
pens that  articles  of  equal  value  may  be  put  into  different 
classes. 

But  actual  rates  are  mainly  fixed  not  by  cost  of  service,  but 
by  what  the  service  is  worth.  Classification  depends  only  in 
a  subordinate  degree  upon  cost.  The  controlling  element  is 
value,  not  cost.  Cheap  goods  must  be  charged  less  than  dear 
goods  although  the  cost  of  service  may  be  greater.  The  main 
point  is  the  development  of  the  traffic.  The  goods  must  not  be 
charged  so  high  rates  as  to  render  their  transportation  impossi- 
ble or  unprofitable.  We  must  keep  in  mind  the  distinction 
between  the  fixed  and  the  variable  expenses.  If  the  freight 
can  be  secured  at  rates  which  will  more  than  cover  the  variable 
expenses,  —  the  actual  hauling  and  a  proportionate  part  of  the 
station  expenses,  —  it  will  pay  the  road  to  take  this  freight, 
because  an  addition,  however  sma1!,  is  thereby  made  to  the  fixed 
expenses.  These  would  have  to  be  met  at  all  events,  whether 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  II 

that  particular  freight  were  taken  or  not.  A  small  contribution 
to  fixed  expenses  is  better  than  none  at  all.  The  choice  is 
between  freight  at  a  rate  slightly  above  mere  cost  of  operation, 
and  no  freight.  Yet  to  apply  this  low  rate  to  all  commodities 
would  of  course  render  it  impossible  to  meet  the  fixed  expenses 
or  earn  profits.  In  other  words,  it  is  profitable  for  a  railway  to 
transport  certain  classes  of  freight  at  rates  which  if  extended 
to  all  business  would  ruin  the  company.  Classification  of 
freight  is  not  only  necessary,  but  justifiable  and  beneficial. 
The  meagre  surplus  over  hauling  expenses  in  the  cheap  goods 
contributes,  if  ever  so  little,  to  the  fixed  expenses,  and  diminishes 
to  this  extent  the  amount  which  it  is  necessary  to  raise  from 
the  remaining  traffic.  The  higher-class  goods  can  be  trans- 
ported at  rates  which  are  lower  than  would  otherwise  be  the 
case.  If  we  had  no  classification,  not  only  would  we  not  have 
cheap  wheat  or  cheap  meat,  but  the  charges  on  all  the  other 
articles  would  be  raised  per  ton-mile,  fit  reduces  the  rates  on 
the  cheap  goods  immensely,  and  the  rate  on  the  dear  goods 
moderately.  )  Classification  is  based,  in  the  main,  on  the  princi- 
ple of  value  of  service.  An  advance  of  ten  cents  per  hundred 
pounds  on  coal  would  soon  make  its  influence  felt,  and  might 
double  or  treble  its  value ;  a  similar  advance  on  silks  or  dry 
goods  would  exert  but  an  inappreciable  influence  on  their  value.1 
The  same  rate  which  would  prohibit  the  transportation  of  one 
commodity  may  scarcely  be  felt  by  another.  The  principle  of 
classification  is  the  first  corollary  from  the  distinction  between 
fixed  and  variable  expenditures. 

To  uphold  the  legitimacy  and  necessity  of  classification  is, 
however,  quite  another  thing  from  maintaining  the  justifiability 
of  all  actual  tariffs  or  from  attempting  to  palliate  undeniable 
abuses.  The  early  roads  started  with  but  little  classification. 
The  first  English  charters  indeed  contained  statutory  maxima 
for  a  number  of  articles.  The  Stockton  and  Darlington  Rail- 
way act  prescribed  three  classes,  the  Liverpool  and  Manchester 

1  Articles  are  thus  classified  primarily  and  chiefly  according  to  their  value;  but 
the  classification  is  modified  by  the  tare,  i.e.,  proportion  of  dead  to  paying  weight,  and 
in  exceptional  instances  by  the  other  considerations  of  cost. 


12  POLITICAL  SCIENCE  QUARTERLY.  [ VOL.  II. 

act  five  classes.1  These  were  based  chiefly  on  the  old  canal 
acts.  In  the  United  States  very  few  of  the  state  charters  fixed 
either  maxima  or  classification.2  The  result  was  a  very  simple 
system.  It  was  found,  however,  that  a  gradual  modification 
and  differentiation  of  the  charges  conduced  not  only  to  a  de- 
velopment of  the  traffic,  but  also  to  a  growth  of  business  pros- 
perity. But  the  matter  of  classification  with  us  to-day  is  in  a 
well-nigh  chaotic  state.  It  is  made  to  depend  on  the  number- 
less exigencies  and  conditions  of  business  life.  It  is  lacking 
in  uniformity,  in  stability,  and  very  often  in  justice.  The  tariffs 
of  the  .present  day  on  our  main  lines  are  a  great  advance  upon 
those  of  several  years  ago,  but  there  is  still  enormous  ground 
for  improvement.  The  point  to  be  noticed  is  that  these  wide 
powers  of  fixing  the  classes  are  put  in  the  hands  of  private  in- 
dividuals as  sole  arbiters.  While  the  principle  of  classification 
is  perfectly  just,  the  liability  to  abuse  of  the  principle  arises 
from  the  fact  that  the  authority  is  given  to  only  one  of  the  par- 
ties in  interest.  It  is  this  which  arouses  the  indignation  of  the 
public  and  emphasizes  the  necessity  of  public  control. 

But  we  must  be  careful  not  to  let  our  indignation  carry  us 
too  far.  The  abuses  of  classification  are  on  the  whole  the 
lesser  abuses  of  railway  management.  They  take  place  only 
within  narrow  limits,  because  it  is  the  interest  of  the  railway 
manager  to  charge  those  rates  which  tend  to  develop  the 
traffic.  Exorbitant  charges  for  any  class  will  lead  to  de- 
creased shipments.  Mistakes  may  be  made,  but  when  the 
railway  is  honestly  managed  the  mistakes  will  be  rectified. 
The  great  advantage  of  the  traffic  associations  or  pools  is  that 
they  minimize  the  danger  of  dishonest  management  in  any 
single  road,  and  bring  about  a  greater  uniformity  and  stability. 
The  dressed-beef  controversy  is  a  case  in  point.3  We  do  not 

1  Some  of  the  earliest  toll  and  maximum  rate  clauses  are  reprinted  in  Grierson, 
Railway  Rates  (1886),  pp.  Ixv-lxxii.    Also,  more  fully,  in  Report  of  Select  Committee 
on  Railways  (1881),  part  ii,  app.  no.  55. 

2  For  a  good  collection  of  the  earliest  charters,  see  Gme  Tell  Poussin,  Chemins 
de  fer  americains  (1836),  pp.  211-271.     See  also  W.  P.  Gregg  and  B.  Pond,  The 
Railroad  Laws  and  Charters  of  the  United  States.     (Boston,  1851.) 

8  See  Proceedings  and  Circulars  of  the  Joint  Executive  Committee,  Freight  De- 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  13 

imply,  with  many  of  our  eloquent  railway  officials,  that  there  is 
a  necessary  identity  of  interests  between  the  railways  and  the 
people.  Our  past  history  unfortunately  does  not  bear  this  out. 
It  would  be  absurd  to  depend  on  this  imagined  harmony  as  a 
remedy  for  actual  abuses.  But  it  is  equally  foolish  to  go  to  the 
other  extreme  with  popular  demagogues.  Classification  should 
indeed  be  supervised  by  public  authorities,  but  the  demand  for  a 
rigid  law  prescribing  all  details,  would  impute  to  our  legislators 
a  knowledge  which  they  cannot  possess.  And  those  who  advo- 
cate state  management  in  the  United  States  forget  to  think  of 
the  havoc  that  would  be  created  by  the  simple  political  influ- 
ence of  our  law-makers.  A  congressman  represents  a  district 
noted  for  the  production  or  manufacture  of  certain  articles; 
what  more  simple  method  of  appeasing  the  clamor  of  his  con- 
stituents than  by  changing  the  article  in  question  from  class  3 
to  class  4  ?  Were  the  state  to  own  the  railways  under  our 
actual  political  system,  the  claims  upon  our  legislators  for 
spoils  would  be  increased  a  thousand-fold.  To  cure  the 
abuses  of  classification  by  letting  our  congressmen  fix  the 
classification  would  indeed  be  jumping  from  the  frying-pan 
into  the  fire. 

An  escape  from  the  dilemma  seems  to  be  outlined  in  the 
principle  of  advisory  boards  or  consultative  councils  akin  to 
those  lately  instituted  in  Europe.  The  German  local  councils1 
are  elected  by  the  chambers  of  commerce  and  agriculture, 
and  it  is  incumbent  on  the  railway  officials  to  consult  with 
them  on  all  important  questions  affecting  the  tariffs.  True, 
the  decision  lies  ultimately  in  the  hands  of  the  railway  author- 
ities, but  these  are  public,  administrative  officials.  The  system 
has  worked  admirably.  In  Italy,  where  the  law  of  1885  has 
prescribed  eight  uniform  classes  for  all  the  lines,  a  council 
with  subordinate  divisions  composed  of  railway  and  state 
officials  as  well  as  representatives  of  commercial  interests 

partment,  for  1884,  (N.  Y.  1885,)  pp.  90-95,  161,  etc.  Cf.  also  the  recent  unifica- 
tion of  east  and  west  bound  trunk-line  tariffs  to  six  classes,  in  place  of  four  and 
thirteen. 

1  Bezirks-Eisenbahnrathe. 


14  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

supervise  the  actual  charges.1  In  France,  where  nothing 
similar  exists,  notwithstanding  the  ministerial  homologation  or 
approval  of  rates,  the  state  is  still  struggling  with  the  railways 
in  the  endeavor  to  bring  about  a  simplified  classification. 
England's  condition  is  almost  as  chaotic  as  ours.2  Of  the 
attempt  to  suppress  all  abuses  of  classification  by  the  heroic 
step  of  abolishing  or  restricting  classification  itself,  as  in  the 
compromise  or  car-space  system  of  central  Europe,  we  shall 
have  more  to  say  later  on.  Classification  per  se  is  legitimate. 

As  opposed  to  classification  a  discrimination  may  be  defined 
as  an  inequality  in  the  charge  for  hauling  a  like  quantity  of 
similar  articles  for  an  equal  distance  in  the  same  manner.  The 
definition  includes  four  points.  The  quantity,  the  articles,  the 
distance,  and  the  manner  of  transportation  must  be  the  same.3  If 
a  railway  charges  in  one  case  one  cent  per  ton-mile  for  wood 
between  Hartford  and  New  York,  and  in  another  case  two 
cents,  this  is  a  discrimination.  It  may  take  place  because  two 
different  persons  sent  it  from  Hartford  or  because  in  the  one 
case  the  wood  was  shipped  at  Hartford  and  in  the  other  at 
Boston.  All  discrimination  is  hence  either  personal  or  local. 
A  personal  discrimination  is  called  a  preferential  rate ;  a  local 
discrimination  is  called  a  differential  rate.4  Let  us  analyze  each. 

1  Consiglio  per  1'  esame  delle  tariffe  ferroviarie. 

2  Lord  Stanley's  bill  of  1887,  §  24,  like  Mundella's  bill  of  1886,  provides  for  a 
revision  of  the  classification  by  the  Board  of  Trade,  to  be  ultimately  enforced  by  law. 
This  is  a  step  in  advance,  —  perhaps  too  great  a  step. 

3  To  haul  one  ton  for  2  cents  and  two  tons  for  4  cents;   to  haul  coal  for  2  cents 
and  wood  for  4  cents;   to  haul  coal  one  mile  for  2  cents  and  two  miles  for  4  cents; 
to  haul  wood  for  2  cents  by  slow  freight  and  for  4  cents  by  fast  freight  or  express, 
is  thus  no  discrimination.     In  each  case  one  of  the  four  elements  of  the  definition  is 
lacking. 

Hadley,  Railroad  Transportation  (1885),  p.  108,  defines  discrimination  as  a  differ- 
ence in  rates  not  based  on  corresponding  difference  in  cost.  This  is  manifestly  incor- 
rect. The  cost  of  service  per  ton-mile  from  A  to  B  may  be  i^  cents,  from  A  to  C, 
a  station  further  on,  only  I  cent  (since  cost  decreases  with  distance).  This  difference 
in  charges  to  B  and  C  is  a  discrimination  against  B,  although  based  on  a  correspond- 
ing difference  in  cost.  It  may  be  a  valid  discrimination,  but  it  is  a  discrimination, 
and  is  everywhere  regarded  as  such.  The  same  holds  true  of  personal  discrimina- 
tions, which  may  sometimes  be  proportional  to  cost  of  service.  Then,  again,  Professor 
Hadley  makes  discrimination  include  classification.  But,  as  we  have  seen,  classifica- 
tion may  be  partly  based  on  cost  of  service. 

*  This  nomenclature,  although  exact,  is  not  always  followed.     It  is  used  in  the 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  15 

Personal  discrimination.  Differences  in  rates  based  on 
classification  we  found  to  be  essentially  legitimate.  It  is 
difficult,  however,  to  find  any  principle  on  which  to  base 
distinctions  between  two  or  more  shippers  for  a  similar  service. 
Personal  discriminations  are  beyond  cavil  the  most  flagitious 
abuses  of  arbitrary  railway  management.  Concessions  made 
to  large  shippers  do  not,  up  to  a  certain  point,  come  within  this 
general  condemnation.  Allowance  for  quantity  or  making  a 
distinction,  e.g.,  between  car-loads  and  less  than  car-loads  is 
within  certain  limits  defensible,  and  is  practised  in  some  shape 
in  every  country.  But  this  is  really  a  matter  of  classification, 
and  may  be  upheld  by  the  advocates  of  cost  of  service  in  the 
same  way  that  classification  into  slow  freight  and  express  is 
defended.  A  well-filled  car  costs  undeniably  less  in  proportion 
than  a  half-filled  car.  But  the  difficulty  is  to  select  the  unit  of 
classification  above  which  the  rates  shall  be  the  same  for  all 
persons.  Shall  it  be  the  pound,  hundredweight,  ton,  or  car- 
load ;  or  shall  there  be  no  unit  at  all  ?  No  country  has  as  yet 
adopted  the  pound  as  a  unit.  In  England  we  have  the  "  smalls  " 
carried  at  lower  rates,  and  other  distinctions  made  in  the  min- 
eral and  special  classes.  With  us  the  common  unit  is  the  hun- 
dredweight, because  of  the  diversity  of  our  car-loads,  which  vary 
from  20,000  to  60,000  Ibs.  The  classification,  however,  generally 
specifies  the  minimum  weight  which  entitles  to  car-load  rates. 
Distinctions  between  ordinary  and  car-loads  are  everywhere 
permitted,  and  one  of  the  fundamental  principles  of  the  "  natu- 
ral "  and  "reform  "  tariffs  in  Germany  is  that  rates  should  differ 
with  the  quantities  of  freight  (up  to  ten  tons).  Of  course  it  costs 

English  Select  Com.  (1881)  Evid.  qu.  13302.  Some  make  "differential"  rates  cover 
all  discriminations,  so  that  a  preferential  rate  would  be  a  differential  rate.  Others 
again  call  all  discriminations  preferential  rates.  But  this  is  confusing.  In  the  United 
States  "  differential "  rate  is  sometimes  used  in  a  peculiar  sense.  The  rate  from 
Chicago  to  New  York,  e.g.,  is  taken  as  a  basis.  A  certain  number  of  cents  are  added 
to  or  subtracted  from  this  rate  for  all  stations  west  or  east  of  Chicago.  These  varia- 
tions are  termed  differentials  and  are  based  to  some  extent  on  distance.  The  effect 
of  these  "  differentials  "  is  thus  to  attain  an  approximate  equality  of  charge  per  ton- 
mile,  while  a  differential  rate  as  commonly  understood  in  European  practice  and  in 
scientific  works  all  over  the  world  amounts  simply  to  a  discriminating  rate  or  an  ab- 
sence of  equality  of  charge.  The  latter  method  is  more  logical  and  scientific. 


16  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

less  to  transport  car-loads  than  single  lots,  but  that  is  due  only 
to  the  amount  of  the  tare.  If  the  single  lots  are  packed  closely, 
so  as  to  fill  the  car,  their  dead  weight  would  be  greatly  dimin- 
ished. At  all  events  it  is  almost  impossible  to  fix  the  exact  dif- 
ference of  cost,  and  in  very  few  instances  do  the  differences  in 
cost  warrant  the  actual  discriminations.1  So  that,  even  if  we 
adopt  the  principle  of  cost  of  service,  the  distinction  between 
car-loads  and  smaller  shipments  is  only  partially  justifiable  and 
may  often  work  injustice  to  the  small  shipper.  The  attempt, 
however,  to  make  the  pound  the  unit  of  shipment  would  still 
be  premature,  although  it  may  be  the  ultimate  outcome  of  the 
controversy.  Allowance  for  quantity  below  a  moderate  limit 
excites  but  little  complaint  and  increases  the  efficiency  of  the 
railway. 

But  if  this  comparatively  unimportant  difference  —  which  is 
in  reality  a  species  of  classification  —  be  in  itself  only  partially 
justifiable,  what  shall  we  say  of  those  vastly  greater  discrimina- 
tions which  cannot  even  claim  cost  of  service  as  an  ostensible 
reason  ?  Such  a  practice  is  indefensible  on  any  theory  whatso- 
ever. To  build  up  one  man's  business  at  the  expense  of  another 
can  never  be  acknowledged  a  legitimate  function  of  the  com- 
mon carriers.  To  give  this  power  to  private  corporations 
would  be  to  strike  at  the  root  of  commercial  prosperity.  Such 
discriminations  are  sometimes  defended  on  the  plea  of  allowance 
for  quantity.  But  allowance  for  quantity  not  based  on  cost  of 
service  is  robbed  of  all  pretext  for  existence.  Whether  a  train- 
load  is  hauled  for  one  shipper  to  one  consignee,  or  for  ten 
shippers  to  ten  consignees  at  the  same  point  makes  very  little 
difference  in  expense  to  the  carrier.  Furthermore,  the  matter 
rarely  arises  in  this  way.  In  almost  every  case  of  concessions 
to  large  shippers  but  few  cars  are  in  fact  forwarded  at  a  time. 
The  favored  shipper's  freight  is  hauled  in  the  same  manner  as 
that  of  his  competitors,  and  the  special  rates  are  granted  only 
because  of  the  contract  to  forward  a  larger  number  of  cars  per 

1  See  a  typical  case  of  rates  on  base-hall  bats  to  Council  Bluffs,  where  the  differ- 
ence between  ordinary  and  car-load  rates  amounted  to  157  per  cent,  thus  crowding 
out  the  small  shippers.  Cullom  Committee  Report,  Test.  (Wicker),  p.  759. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  17 

month  or  year.1  The  cost  to  the  railway  is  not  appreciably 
smaller,  but  the  advantage  to  the  large  shipper  is  obvious.  The 
special  rates  enable  him  to  control  the  market,  the  control  of 
the  market  secures  him  the  special  rates.  It  is  a  see-saw  work- 
ing both  ways.  Allowance  for  quantity  of  this  kind  can  hence 
not  be  justified  even  in  the  partial  way  that  the  distinction 
between  car-loads  and  ordinary  freight  can  be  upheld.  The  cost 
of  service  principle  cannot  be  invoked. 

Reduced  to  this  extremity,  the  advocates  of  personal  discrimi- 
nation are  wont  to  assert  that  a  business  firm  makes  wholesale 
rates  less  than  retail  and  gives  special  figures  perhaps  to  every 
customer.  Why  is  not  the  same  principle,  they  ask,  applicable 
to  the  railroad  business  ?  They  utterly  fail  to  perceive  that  a 
railway  is  not  simply  a  business  corporation,  but  something  far 
more ;  that  it  is  a  public  trust  and  forms  to-day  our  public  high- 
way ;  that  a  merchant  is  not  bound  to  treat  his  customers 
equally  and  may  favor  his  friends  without  violating  any  law  of 
business  ethics,  but  that  a  railway  is  a  body  of  delegated 
powers ;  that  it  exercises  public  functions,  is  invested  with 
public  rights,  and  therefore  has  public  duties.  This  is  the  im- 
portant qualification  of  the  principle  that  the  question  of  rail- 
way rates  is  a  mere  commercial  question.  To  make  conces- 
sions for  large  shipments  is  to  arrogate  powers  of  wide-reach- 
ing potency ;  it  is  a  claim  which  cannot  be  acquiesced  in  or 
defended.  The  wholesale  principle  or  allowance  for  quantity 
when  carried  to  this  extreme  becomes  utterly  untenable.2  And 

1  Cullom  Committee  Report,  p.  191. 

2 The  report  of  the  Hepburn  committee  is  thus  open  to  question :  "The  principle 
of  wholesale  rates  enters  as  legitimately  into  railroad  carriage  as  into  any  private 
business."  But  this  is  qualified  by  the  clause :  "  Where  additional  quantity  ceases  to 
lessen  cost  of  carriage,  or  be  of  pecuniary  advantage  to  the  road,  the  differences 
should  cease."  Report,  p.  65. 

An  interesting  discussion  of  the  principle  of  wholesale  rates  as  applied  to  jobbers 
and  retailers  may  be  found  in  the  report  of  the  Iowa  commissioners,  an  exceedingly 
able  body.  The  celebrated  case  is  Merrill  &  Keeney  vs.  Chic.  &  N.  W.  &c.  See 
Report,  1883,  pp.  678-686,  and  further  discussion  in  Report,  1884,  pp.  71-77.  The 
commissioners  go  too  far  in  the  defence  of  the  wholesale  principle  and  err  in  making 
classification  and  differential  rates  depend  upon  this  principle.  They  depend  on  the 
contrary  on  the  distinction  between  fixed  and  variable  expenses.  Only  in  so  far  as 
allowance  for  quantity  depends  on  cost  of  service,  is  it  legitimate,  The  wholesale 


1 8  POLITICAL  SCIENCE  QUARTERLY.  [ VOL.  II. 

the  claim  is  in  fact  no  longer  upheld  by  our  best  railroad  men.1 
But  although  no  longer  theoretically  defended,  such  discrimina- 
tions are  still  actually  practised.  Not  only  concessions  to  large 
shippers,  but  what  is  worse,  personal  discriminations  resting  on 
no  other  basis  but  pure  favoritism,  are  yet  of  common  occurrence. 
The  revelations  of  the  New  York  assembly  investigation  of 
1879  are  fresh  in  the  minds  of  all.  A  great  improvement  has 
indeed  taken  place  in  the  eastern  lines,  but  secret  rebates  or 
substantially  similar  favors  are  by  no  means  a  thing  of  the  past.2 
Personal  discriminations  then  cannot  be  defended  upon  any 
theory  of  railway  rates.  They  must  be  stopped  at  all  hazards. 
But  how  ?  The  common  law  forbids  them,  but  the  inhibition 
of  the  common  law  has  been  of  little  efficacy.  The  fear  of  in- 
curring the  displeasure  of  the  railways  has  acted  as  a  serious 
check  to  the  institution  of  suits.  To  rely  on  free  competition 
as  a  panacea  is  absurd.  Personal  discriminations  are  most 
glaring  when  competition  is  most  active.  Cut-rates  and  rebates 
are  never  so  common  as  during  the  railway  wars.  The  surest 
method  of  preventing  personal  discriminations  is  just  the  oppo- 
site, i.e.,  universal  combination  or  monopoly,  in  other  words 
state  ownership.  This  in  fact  was  one  great  reason  why  the 

principle  per  se  is  not  applicable  to  railroads.  Cf.  Test,  of  Manager  Haines,  Cullom 
Com.  Rep.,  App.  p.  143.  Notwithstanding  the  report  of  the  Iowa  board,  the  distinc- 
tion between  jobbers  and  retailers  was  abandoned.  Of  late  there  has  been  a  movement 
to  abolish  even  car-load  rates.  But  the  arguments  of  the  board  have  thus  far  pre- 
vented it.  Report,  1885,  pp.  45-53;  1886,  pp.  31-46.  From  the  railway  standpoint 
the  wholesale  principle  is  indeed  a  "fundamental  truth,"  as  the  commission  says;  but 
from  the  public  standpoint  the  "  fundamental  truth  "  vanishes.  Railway  profits,  as 
we  shall  see,  are  no  excuse  for  inequality  of  charge. 

1  Cf.  Fink  in  Hepburn  Com.  Rep.  Exhibits,  p.  149,  and  The  Railroad  Problem  and 
its  Solution  (1883),  pp.  10,  41. —  Cf.  Cullom  Com.  Rep.,  Test,  of  Blanchard,  p.  159; 
Firth,  p.  466;  Furber,  p.  333;  Kimball,  p.  1238;  Mink,  p.  437,  Wistar,  p.  516.     [The 
only  two  exceptions  are  Ackerman,  p.  604,  and  Meek,  p.   1049.]     Also  Jewett  and 
Vanderbilt  in  Hepburn  Com.  Rep.,  Test.,  pp.  1481  and  130.     So  Alexander,  Railway 
Practice  (1887)  pp.  21,  59. 

2  Cf.  the  testimony  of  a  railway  official :  "  I  have  been  doing  it  myself  for  years, 
and  had  to  do  it."     Referring  to  the  effort  to  get  the  business  of  a  number  of  millers 
from  another  company,  he  adds :   "  I  can  accomplish  my  purpose  better  by  picking 
out  one  good,  smart,  live  man  and  giving  him  a  concession;   ...  let  him  go  there 
and  scoop  the  business.     I  get  the  tonnage,  and  that  is  what  I  want.  .  .  .  You  can 
take  hold  of  one  man  and  build  him  up  at  the  expense  of  the  others,  and  the  railway 
will  get  the  tonnage."     Cullom  Rep.,  Test.  (Wicker),  p.  778. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  1 9 

railways  were  bought  up  by  the  Prussian  government.1  But 
state  ownership  is  out  of  the  question  at  present  in  the  United 
States.  With  our  actual  political  conditions  and  our  unre- 
formed  civil  service,  the  abuses  would  be  intensified,  not  les- 
sened. There  are  only  three  methods,  or  combinations  of 
methods,  which  can  settle  the  question,  —  judicial  regulation, 
legislative  and  administrative  regulation,  development  of  the 
pooling  policy.  The  history  and  merits  of  each,  as  well  as  the 
method  pursued  in  the  Interstate  Commerce  law,  may  be  left  to 
the  following  essay.  But  preferential  rates  cannot  in  any  sense 
be  upheld  as  a  corollary  of  the  principle  of  value. 

Local  discrimination.  Quite  different  from  preferential  rates 
are  differential  rates.  Differential  rates  may  arise  in  two  ways  : 
through  the  desire  of  the  railway  to  develop  its  traffic,  or  through 
the  action  of  competitive  centres.  The  road  may  wish  to  ex- 
tend its  traffic  in  commodities  coming  from  a  distance.  If  they 
are  to  be  carried  at  all,  they  must  be  transported  at  less  than 
the  regular  rates.  A  commodity  which  comes  from  a  point  a 
thousand  miles  distant  cannot  afford  to  pay  the  same  rate  per 
mile  as  one  which  comes  ten  miles.  The  traffic  will  not  bear 
it.  To  charge  the  same  rate  per  mile  from  Kansas  to  New 
York  as  from  New  Jersey  to  New  York  would  simply  put  a 
stop  to  the  Kansas  traffic.  Hence  arises  the  necessity  of  a  dis- 
tinction between  local  and  through  rates.  Goods  coming  from 
a  distance  must  be  treated  in  the  same  manner  as  cheap  goods. 
Local  discrimination  is  like  classification.  The  distant  freight 
is  the  cheap  freight,  the  near  freight  is  the  dear  freight.  The 
underlying  principle  again  is  value  of  service.  The  act  off 
transportation  adds  far  more  to  the  value  of  the  distant  than  to) 
that  of  the  near  freight.  Annihilation  of  distance  is  propory 
tionate  increase  of  value. 

But  secondly,  local  discriminations  may  arise  from  competi- 
tion in  the  centres  of  traffic,  whether  the  competition  be  due  to 
railways  or  waterways.  Two  lines  meet,  e.g.,  in  Buffalo.  The 
old  line  wishes  to  retain  its  business,  the  new  line  wishes  to 

1  Cf.  the  argument  for  state  railroad  ownership  (a  translation  of  a  Prussian  par- 
liamentary document  of  1879),  New  York,  1880,  pp.  43  et  seq. 


20  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

develop  a  new  business.  Rates  from  Buffalo  to  New  York  will 
immediately  fall,  and  the  competition  may  be  carried  so  far  as 
to  reduce  rates  to  or  below  the  level  of  mere  transportation  ex- 
penses. Local  rates  may  remain  unaffected.  The  result  will 
be  a  disproportionately  small  charge  to  the  point  of  competition. 
The  number  of  competitive  centres  in  the  United  States  is  im- 
mense,1 the  quantity  of  local  discriminations  is  hence  corre- 
spondingly large.  A  lower  rate  to  the  competitive  centre  is  the 
sole  condition  of  the  retention  of  the  competitive  traffic.  In- 
crease of  charges  means  a  destruction  of  the  business.2 

From  the  standpoint  of  the  railway,  therefore,  the  principle 
of  differential  rates  is  beneficial.  It  is  due  in  the  last  instance 
to  the  distinction  between  fixed  and  variable  expenses.  Any 
rate  on  the  through  business  above  mere  operating  expenses  is 
pro  tanto  profitable.  The  surplus  goes  to  defray  the  fixed  ex- 
penses. Rather  than  not  get  the  traffic  at  all,  the  railway  will 
take  it  at  reduced  rates,  and  yet  these  reduced  rates  if  applied 
to  all  business  would  be  ruinously  unprofitable.  The  charge 
per  mile  on  the  longer  haul  may  be  less  than  the  charge  per 
mile  on  the  shorter  haul.  How  much  less  it  may  be  is  of  no 
concern  to  the  railway,  as  long  as  operating  expenses  are  paid. 
The  only  endeavor  is  to  retain  and  extend  the  traffic. 

From  the  standpoint  of  the  public  the  principle  of  differ- 
ential rates  is  also  justifiable  —  as  a  principle.  The  element 
of  competition  would  in  itself  not  be  a  valid  justification. 
Whether  the  freight  is  carried  by  one  route  or  another,  ceteris 
paribus,  makes  no  difference  to  the  shipper,  except  indeed  that 
public  interest  might  oppose  competition  of  foreign  railways. 
But  the  long-haul  consideration  is  of  vital  importance  to  the 
public.  It  becomes  the  question  of  having  the  goods  trans- 
ported at  the  lower  rates,  or  not  having  them  transported  at  all. 
The  industrial  progress  of  the  nineteenth  century  is  due  to 
cheapened  methods  of  production.  Whatever  tends  to  reduce 

1  In  1886,  of  the  33,694  railway  stations  in  the  United  States,  2778  were  junction 
points.     Chief  of  Bureau  of  Statistics  quoted  in  Congressional  Record,  Jan.  12,  1887, 

p.  562- 

2  Cf.  Michaelis,  Die  Differentialtarife  der  Eisenbahnen,  Bd.  I.  (1873);  Boinvil* 
liers,  Des  transports  a  prix  reduits  sur  les  chemins  de  fer  (1878). 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  2I    \ 

3 

the  cost  of  transportation  and  to  eliminate  the  element  of  dis- 
tance in  so  far  increases  national  prosperity.  ^Only  under  a 
system  of  differential  rates  does  this  development  become 
possible.  Without  local  discriminations  the  growth  of  our 
country  would  be  set  back  many  decades.  They  form  an  in- 
dispensable condition  of  national  prosperity.  7 

The  legitimacy  of  the  principle  of  differential  rates  may  be 
inferred  from  considering  the  effects  of  their  abolition.  The 
opposite  of  a  differential  rate,  i.e.,  a  different  charge  per  mile,  is 
an  equal  mileage  or  pro  rata  rate,  i.e.,  the  same  charge  per  mile. 
We  pass  over  the  absurd  inconsistency  of  those  who  in  the 
same  breath  advocate  cost  of  service  and  pro  rata  charges. 
One  of  the  plainest  principles  of  railway  economics  is  that  cost 
of  service  becomes  relatively  less  as  the  distance  traversed 
becomes  greater.  To  transport  an  article  twenty  miles  does 
not  cost  twice  as  much  as  to  transport  it  ten  miles.  Only 
a  portion  of  the  expense  increases  with  the  distance.  The 
greater  part  is  independent  of  distance,  so  that  the  cost  of 
service  diminishes  with  every  additional  mile.  The  separation 
of  terminal  charges,  which  are  of  course  utterly  irrespective  of 
the  distance  traversed,  from  pure  hauling  expenses,  would 
diminish,  but  by  no  means  remove  the  objection.  Hence  to 
base  equal  mileage  rates  on  the  principle  of  cost  of  service  is 
illogical.  Even  according  to  the  doctrine  of  cost,  differential 
rates  are  perfectly  legitimate.  Rates  absolutely  proportional 
to  cost  of  service  would  be  differential  rates.1 

But  omitting  the  question  of  logic,  what  would  be  the  effect 
of  pro  rata  charges  ?  Here  both  theory  and  practice  come  to 
our  aid.  The  theoretical  conclusions  have  been  well  formu- 
lated in  various  governmental  commissions,  the  practical  illus- 
trations have  been  afforded  by  the  working  of  our  Granger  laws 
and,  in  a  greatly  modified  extent,  by  the  experience  of  some 
European  railways.  Nowhere,  perhaps,  has  the  matter  been 
more  tersely  put  than  by  the  English  parliamentary  committee 
of  1872  :2 

1  This  has  led  to  the  sliding  scale  and  zone  systems  —  mileage  rates  decreasing 
with  distance  —  in  various  parts  of  Europe,  and  even  in  the  United  States. 

2  Joint  Select  Committee  on  Railway  Cos.  Amalgamation,  1872,  Rep.,  p.  xxxii, 


22  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

(a)  It  would  prevent  railway  companies  from  lowering  their  fares  and 
rates,  so  as  to  compete  with  traffic  by  sea,  by  canal,  or  by  a  shorter  or 
otherwise  cheaper  railway,  and  would  thus  deprive  the  public  of  the  ben- 
efit of  competition,  and  the  company  of  a  legitimate  source  of  profit. 

(b)  It  would  prevent  railway  companies  from  making  perfectly  fair 
arrangements  for  carrying  at  a  lower  rate  than  usual  goods  brought  in 
larger  and  constant  quantities,  or  for  carrying  for  long  distances  at  a 
lower  rate  than  for  short  distances. 

(c)  It  would  compel  a  company  to  carry  for  the  same  rate  over  a  line 
which  has  been  very  expensive  in  construction,  or  which,  from  gradients 
or  otherwise,  is  very  expensive  in  working,  at  the  same  rate  at  which  it 
carries  over  less  expensive  lines. 

In  short,  to  impose  equal  mileage  on  the  companies  would  be  to  de- 
prive the  public  of  the  benefit  of  much  of  the  competition  which  now 
exists  or  has  existed,  to  raise  the  charges  on  the  public  in  many  cases 
where  the  companies  now  find  it  to  their  interest  to  lower  them,  and  to 
perpetuate  monopolies  in  carriage,  trade,  and  manufactures,  in  favor  of 
those  rates  and  places  which  are  nearest  or  least  expensive,  where  the 
varying  charges  of  the  companies  now  create  competition. 

In  like  manner,  the  New  York  commission  concludes,  after  a 
comprehensive  review  of  the  whole  subject,  that/n?  rata  charges 
are  absolutely  injudicious  and  impracticable.1  The  Senate  com- 
mittee of  1886  does  not  even  consider  the  proposition  worth  a 
separate  discussion.  The  late  French  and  Italian  commissions 
hold  the  same  views.2  American  experience  is  no  less  em- 
phatic. The  first  Granger  law,  enacted  in  Michigan  in  1871, 
prescribed  equal  mileage  rates  —  with  a  slight  modification  for 
short  distances.  Even  as  changed  by  the  law  of  1873  these 
rates  were  so  utterly  impracticable  that  they  were  disregarded 
by  the  railways  with  the  tacit  consent  of  the  people.  The  corn- 
where  the  conclusions  of  the  Royal  Commissions  of  1865  are  simply  re-formulated. 
The  Select  Committee  of  1882  reprints  the  conclusions  and  discusses  them  at  length. 
Report,  pp.  ix  et  seq. 

1  Report  of  the  Board  of  Railroad  Commissioners  on  the  pro  rata  bill  (1884), 
p.  125.     Also  the  annual  report  for  1884,  App.  63.     Pro  rata  laws  are  described  as 
"  straight-jackets,  preventing  perhaps  some  positive  evil,  but  dulling  the  energy  and 
cramping  the  development  of  business.    They  hamper  legitimate  efforts  at  expansion." 

2  "  E  altresi  un  fatto  incontestabile  che  il  sistema  delle  tariffe  differenziali  ha  con- 
tribuito  a  rendere  piu  forti  e  migliori  le  Industrie  nazionali,"  etc.     Atti  della  Commis- 
sione  d'Inchiesta  (1881),  Riassunto,  II,  832.     For  France  see  the  report  translated 
in  the  English  Select  Com.  Rep.  (1882),  App.,  especially  p.  450. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  23 

missioner  pronounced  the  duties  imposed  upon  him  impossible 
of  accomplishment.1  The  fixed-distance  tariff  of  Iowa,  accord- 
ing to  the  law  of  1874,  proved  to  be  so  unequal  and  unjust  in  its 
operation  that  it  was  repealed  shortly  after.2  The  results  of  the 
Potter  law  of  18/4,  in  Wisconsin,  and  of  similar  enactments  in 
Minnesota  and  Illinois,  were  equally  convincing.  They  proved 
to  be  rather  a  burden  than  a  relief.  The  demand  for  equal 
mileage  rates  is  an  emanation  of  crude  ideas ;  the  outcome  of  a 
laudable  demand  for  equality,  which  would  in  actual  practice 
result  in  glaring  inequality  and  in  an  abandonment  of  the 
greatest  benefits  conferred  by  railroad  transportation.  Differ- 
ential rates  or  local  discriminations  form  a  necessary  part  of 
all  railway  management.3  They  constitute  the  second  corollary 
from  the  distinction  between  fixed  and  variable  expenditures. 

The  principle  of  value  of  service  may  thus  be  analyzed  into\ 
the  two  constituent  elements  of  classification  and  local  discrim-l\ 
ination.     But  now  the  question  arises  :  Is  value  of  service  in- 
deed a  just   basis  for  railway  charges?      Should   not  cost  of 
service  be  preferred?     We  leave  the  domain  of  practicability 
and  come  to  the  field  of  justice. 

Let  us  first  ascertain  whether  the  value-of-service  principle  is 
indeed  so  novel  in  transportation  charges  as  the  anti-monopoly 
league  and  others  maintain.  This  assertion  may  be  categori- 
cally denied.  The  old  turnpike  tolls  in  England,  as  in  America, 
whether  for  vehicles  or  animals,  were  not  the  same  for  all,  but 
were  divided  into  Different  categories.  The  English  turnpike 
acts  fixed  higher  rates  for  coaches  than  for  dray  wagons  ;  accord- 
ing to  the  doctrine  of  cost  of  service  they  should  have  done  the 
opposite.  In  France  the  charges  on  the  highways  varied  not 
only  from  road  to  road,  but  frequently  from  day  to  day,  keeping 
pace  with  the  intensity  of  the  traffic.4  The  charges  on  the 
canals  again  were  nowhere  based  on  cost  of  service;  not  only 
were  differences  of  charge  made  according  to  the  value  of  the 

1  Cullom  Committee  Rep.,  p.  109. 

2  Eighth  Report  of  Iowa  Board  of  R.  R.  Commissioners  (1885),  p.  35. 

3  Cf.  Aucoc,  Les  tarif  des  chemins  de  fer  (1880),  p.  43. 

4  De  Foville,  Transformation  des  moyens  de  transport  (1880),  p.  63. 


24  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

commodities  transported,  as  on  the  American  and  English 
canals,  but  in  many  instances  differential  rates  were  charged, 
although  no  one  thought  of  opposing  them  in  principle.1  So 
the  earliest  railway  acts  were  based  unconsciously  on  value  of 
service.  In  the  charter  of  the  first  English  steam  railway— 
the  Stockton  and  Darlington  —  among  other  charges  which 
deviate  from  cost  of  service  we  find  that  rates  on  coal  destined 
for  exportation  are  fixed  at  ^d.  per  ton-mile,  but  on  all  other 
coal  at  \d,  per  ton-mile.  Similar  distinctions  may  be  found  in 
most  of  the  early  charters.  In  the  United  States  these  pro- 
visions were  not  so  common,  simply  because  there  were  very 
few  charter-maxima  for  freight.  But  at  all  events  these  exam- 
ples prove  that  the  cost  of  service  principle  was  by  no  means 
avowedly  followed.  What  has  been  called,  even  in  the  official 
documents  the  "outrageous  principle"  or  the  "audacious  plea" 
of  value  of  service  2  is  thus  not  a  new  departure.  The  principle 
is  as  old  as  the  improved  methods  of  transportation  themselves. 

Moreover,  the  value  theory  is  not  so  opposed  to  the  cost 
theory  as  is  frequently  imagined.  We  know  that  lower  rates 
for  cheap  (or  distant)  goods  increase  the  traffic  and  thus  dimin- 
ish the  cost  of  service.  The  value  of  the  articles  thus  affects 
traffic  and  cost.  And  since  the  reduction  of  rates  for  cheap 
goods  leaves  only  a  small  surplus  above  operating  expenses  for 
fixed  charges,  while  higher  rates  affect  the  dear  (or  near)  goods 
very  little,  there  is  no  valid  reason  why  the  latter  should  not 
be  made  to  bear  a  proportionately  larger  share  of  the  fixed 
charges.  From  the  standpoint  of  justice  no  exception  can  be 
taken  to  the  principle  of  value,  even  regarded  as  a  product  of 
the  principle  of  cost. 

But  is  the  doctrine  of  cost  of  production  itself  universally 
applicable  as  the  foundation  of  prices  ?  What  the  railway  pro- 
duces is  transportation ;  its  cost  of  production  is  cost  of  service. 
It  is  claimed  that  the  utilities  produced  by  the  railway,  like  all 

1  On  the  Pennsylvania  canal  there  were  12  classes,  the  rate  varying  from  0.6  to 
4  cents  per  ton-mile.     For  Europe,  cf.  Sax,  Die  Verkehrsmittel  (1878),  I,  180;   Jacq- 
min,  De  1' exploitation  des  chemins  de  fer  (1868),  I,  368. 

2  Report  of  Mass.  R.  R.  Com.  (1885),  p.  35.    Cf.  the  minority  view  of  English  Select 
Com.  of  1882,  Rep.,  p.  liv. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  25 

utilities  which  are  the  subject  of  exchange,  should  be  regulated 
by  cost  of  production.  This,  it  is  asserted,  is  the  only  just 
law.  But  such  a  conclusion  is  of  doubtful  validity.  Even 
granting  that  cost  of  production  forms  a  just  basis  for  prices, 
no  one  claims  that  actual  business  prices  of  each  particular 
commodity  vary  with  the  cost.  The  application  to  railway 
rates  is  plain.  The  cost  of  service  theory  might  logically  de- 
mand that  the  surn^total  of  charges  should  vary  with  the  cost, 
but  not  that  the  price  of  each  individual  transaction  should 
be  fixed  by  its  cost  of  service.  Even  were  this  practicable,  — 
which  we  have  seen  is  not  the  case,  —  it  would  not  be  theoreti- 
cally defensible. 

The  principle  of  value  of  service  has  a  firmer  foundation. 
Railway  charges  cannot,  indeed,  be  fixed  like  prices  in  general, 
simply  by  demand  and  supply.  This  is  the  mistake  of  the 
railway  officials  who  attempt  to  justify  all  charges.1  Railway 
transportation  is  more  than  a  simple  business;  it  is  a  semi-public 
occupation,  a  public  trust.  Hence  the  necessity  of  restricting 
the  inequalities  of  every-day  commercial  practice.  But  to 
oppose  the  abuses  of  a  principle  is  quite  another  thing  from 
demurring  to  the  principle  itself.  The  value-of-service  doctrine, 
correctly  understood,  simply  applies  the  methods  already  fol- 
lowed in  certain  public  relations.  It  fixes  charges  according  to 
the  ability  to  pay  —  the  same  principle  that  is  recognized  in 
taxation.  Charging  what  the  traffic  will  bear  is  a  rough  way  cf 
stating  that  the  charges  are  proportioned  to  the  capacity  or 
ability  of  the  articles  that  compose  the  traffic.  It  will  not  be 
questioned  that  the  endeavors  to  develop  traffic  can  be  real- 
ized only  by  making  lower  charges  for  the  cheaper  (and  distant) 
goods.  But  the  element  of  justice  is  introduced  as  soon  as 
we  show  that  such  a  method  graduates  charges  according  to 
ability.  Of  course  it  does  not  follow  that  all  rates  actually 
charged  are  just  rates.  The  inference  simply  is  that  the  prin- 
ciple of  value,  as  a  principle,  is  not  open  to  the  objections  often 

1  So  de  la  Gournerie,  Etudes  economiques  sur  Sexploitation  des  chemins  de  fer 
(1880),  pp.  118,  119;  Grierson,  Railway  Rates  (1886),  p.  68;  and  most  of  the 
American  writers. 


26  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

urged.  The  ability  of  an  article  to  pay,  its  capacity  to  con- 
tribute to  the  payment  of  the  expenses,  is  an  undeniably  valid 
basis  for  rates.  As  it  is  well  expressed  by  the  Cullom  Com- 
mittee : 

The  capacity  of  each  commodity  to  contribute  to  the  payment  of  the 
fixed  charges  is  measured  by  the  extent  to  which  the  cost  of  its  transpor- 
tation fixes  its  market  value  and  determines  the  question  of  its  movement. 
In  the  case  of  commodities  like  coal,  stone,  ore,  beef,  corn,  lumber,  etc., 
the  freight  charge  constitutes  the  principal  item  of  cost  to  the  consumer ; 
however  small  may  be  his  contribution  to  the  general  burden,  it  is  rela- 
tively greater  than  that  made  by  the  consumer  of  high-priced  articles, 
such  as  clothing  or  dry  goods,  e.g.,  the  selling-price  of  which  is  not 
appreciably  affected  by  the  freight  charges,  even  though  unreasonably 
high.1 

And  what  is  true  of  the  cheap  goods  is  true  of  the  distant 
goods.  For  the  purposes  of  transportation  they  stand  on  pre- 
cisely the  same  footing  and  are  subject  to  the  same  conditions. 
The  principle  again  applies  equally  well  to  passenger  traffic. 
Even  in  the  United  States  there  are  virtually  different  classes, 
and  the  higher  fares  for  the  better  service  may  be  upheld  on  the 
principle  that  the  passengers  in  the  higher  class  cars  possess 
more  ability  to  pay  large  fares  than  those  in  ordinary  or  emi- 
grant cars.  £~The  value  of  service  principle  is  based  on  sup- 
posed ability  to  payTl 

But  now  the  difficult  question  arises.  We  have  shown  that 
the  low-priced  wares  possess  less  ability  to  pay  than  the  high- 
priced  wares.  Does  it  follow  that  the  more  valuable  wares,  by 
reason  of  their  greater  ability  to  pay,  should  be  charged  higher 
rates  than  the  average,  or  than  would  otherwise  be  the  case,  in 
order  to  compensate  for  the  lower  rates  of  the  cheaper  goods  ? 
Does  the  principle  of  value  imply  this  compensating  action,  and 
is  this  principle  of  compensation  valid  and  just  ?  This  is  the 
puzzling  question.  To  give  a  precise  answer  is  not  so  simple 
as  it  might  appear.  We  may,  indeed,  assert  with  decision  that 
difference  in  value  implies  a  difference  in  ability  to  pay,  but  it 
is  rather  arbitrary  and  hazardous  to  assert  exactly  what  relation 

1  Report,  p.  185. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  2J 

there  is  between  value  and  ability.  Shall  an  article  of  double 
the  value  pay  twice  the  rate  ;  and  if  not,  why  not  ?  The  diffi- 
culty, in  fact,  is  exactly  the  same  that  is  met  with  in  the  prob- 
lems of  taxation.  One  of  the  fundamental  principles  of  equity 
in  taxation  is  that  contributors  should  pay  taxes  in  proportion 
to  their  ability.  A  rich  man  ought  to  pay  more  than  a  poor 
man ;  the  difficulty  arises  when  we  must  determine  exactly  how 
much  more  he  ought  to  pay.  Is  the  difference  of  ability  propor- 
tional to  their  property,  or  to  their  income,  or  to  their  expenses  ? 
Or,  again,  should  the  difference  of  ability  be  measured  not  by  a 
proportional,  but  by  a  progressive,  scale  of  taxation,  —  should 
there  be  a  progressive  property,  or  a  progressive  income,  or  a 
progressive  expense  tax,  rather  than  a  proportional  tax  ?  None 
of  these  questions  can  be  declared  definitely  settled  by  the  sci- 
ence of  finance.  The  answers  are  necessarily  vague  because  of 
the  relativity  in  the  test  of  ability. 

Exactly  the  same  considerations  are  applicable  to  railway 
tariffs.  Difference  in  value  implies  difference  in  ability.  The 
cheap  articles  possess  less  ability  than  the  dear  goods,  and 
should  thus  pay  lower  rates.  But  to  determine  how  much 
higher  rates  the  others  should  pay  is  not  a  self-evident  proposi- 
tion. The  question  is  a  relative  one,  and  the  rates  may  vary 
within  wide  limits.  It  is  precisely  because  the  question  is  a 
relative  one  that  the  many  abuses  of  railway  management  have 
arisen.  This  relativity,  the  possibility  of  making  undue  differ- 
ences within  the  limits  of  the  just  principle,  becomes  therefore 
a  strong  argument  in  favor  of  some  form  of  public  regulation.1 
The  unhampered  railway  management  may  pursue  the  correct 
policy  of  charging  what  they  think  the  service  is  worth,  but  their 
opinions  may  vary  within  wide  limits.  There  is,  in  other  words, 
such  a  possible  elasticity  or  flexibility  in  the  methods  of  fixing 
the  details  that  the  actual  charges  may  be  far  from  adequately 
satisfying  all  demands.  This  fact  above  all  others  has  earned  for 
the  doctrine  of  charging  what  the  traffic  will  bear  the  deserved 

1  Cohn,  Untersuchungen  liber  die  englische  Eisenbahnpolitik,  Bd.  iii  (1883),  S.  84, 
concludes  that  the  railways  must  therefore  be  owned  and  managed  by  the  state.  But 
such  a  conclusion  is  not  at  all  necessary. 


28  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

epithet  of  "  hap-hazard  "  estimate.1  The  doctrine  of  free  com- 
petition and  uncontrolled  liberty  does  not  follow  from  the  prin- 
ciple of  value  of  service  as  the  foundation  of  railway  tariffs. 

But  at  all  events  one  point  has  been  gained.  The  principle 
of  value,  within  these  wide  limits,  is  a  principle  which  not  only 
does  determine  railway  tariffs,  but  which,  although  liable  to 
abuse,  is  a  correct  principle.  It  is  just  because  it  is  founded  on 
the  principle  of  ability.  It  is  neither  new  nor  "  outrageous."  It 
is  not  only  a  just  principle,  but,  as  we  have  seen,  the  only 
practicable  principle.  The  cost  of  service  doctrine  can  no  longer 
put  forth  the  exclusive  claim  of  justice  as  the  basis  of  railway 
tariffs. 

One  exaggeration,  however,  must  be  avoided.  The  principle 
of  value,  we  said,  implies  the  doctrine  of  compensation.  But 
this  does  not  imply  that  the  higher  charges  on  the  dear  goods 
or  local  traffic  are  higher  than  they  would  be  if  there  were  no 
lower  charges  on  the  cheap  goods  or  through  traffic.  Were  the 
rates  on  the  cheap  or  long-distance  traffic  to  be  raised,  it  would 
not  be  transported  at  all ;  and  since  its  contribution  to  the  fixed 
expenses  would  fall  away,  the  whole  expense  would  necessarily 
be  borne  by  the  dear  and  short -distance  traffic.  The  rates  on 
the  latter  would  have  to  be  increased  to  make  good  for  the 
loss  of  the  former ;  the  dear  and  local  freight  would  pay  even 
more  than  it  pays  now.  Those  who  object  to  the  principle  of 
value  because  it  unduly  raises  the  charges  on  high-class  and 
local  business  thus  utterly  fail  to  perceive  that  in  many  cases  it 
produces  just  the  contrary  effect.  The  principle  of  value  often 
lowers  the  rates  on  the  dear  goods,  and  renders  possible  the 
transportation  of  the  cheap  goods.  It  is  the  long-distance 
traffic  which  has  enabled  the  American  railways  to  reduce  their 
charges,  through  as  well  as  local,  far  below  the  level  of  Euro- 
pean tariffs.  Pro  rata  charges,  or  even  rates  based  solely  on 
cost  of  service,  would  give  us  tariffs  much  higher  than  those  in 
actual  use ;  they  would  level  up,  not  level  down. 

Classification  and  differential  rates  are  thus  legitimate  and  nec- 
essary expedients :  legitimate,  because  based  on  value ;  neces- 

1  Sir  B.  Samuelson,  Report  on  Railway  Goods  Tariffs,  etc.  (1886),  p.  20. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  29 

sary,  because  without  them  railway  transportation  would  become 
vastly  less  efficient.  The  same  analysis  would  show  the  illegiti- 
macy of  personal  discriminations,  even  in  wholesale  transactions. 
^Classification  and  local  discrimination  reduce  rates  for  the  traffic 
which  is  less  able  to  pay  ;  personal  discrimination  reduces  rates 
for  the  traffic  which  is  better  able  to  pay.  Reduced  rates  to 
large  shippers  increase  the  advantages  of  the  strong ;  rates  fixed 
according  to  value  tend  to  diminish  the  disadvantages  of  the 
weak J  Preferential  rates  are  wrong  because  not  based  on  the 
principle  of  value ;  differential  rates  are  right  because  follow- 
ing the  doctrine  of  value.  Preferential  rates  invert  the  consid- 
erations of  ability ;  differential  rates  maintain  the  principle  of 
ability. 

But  we  must  not  be  misunderstood.  While  the  principle  of 
charging  what  the  traffic  will  bear  is  essentially  just  and  legiti- 
mate from  the  railway  standpoint,  from  the  public  standpoint  it 
must  be  regarded  as  a  subordinate  principle.  Value  of  service 
puts  into  the  hands  of  the  railways  practically  a  power  of  taxa- 
tion. It  is  indeed  not  entirely  an  arbitrary  power,  since  the 
charges  are  partially  regulated  by  water  competition.  But  in 
its  essence  it  is  a  power  of  taxation  —  a  taxation  often  cunningly 
masked  in  the  methods  of  classification  and  discrimination. 
From  the  public  standpoint  we  maintain  the  great  principle  of 
equal  treatment  for  all  persons  and  all  business.  This  is  the 
general  rule ;  the  principle  of  value  must  be  viewed  as  a  legiti- 
mate qualification  of  the  rule  of  equal  treatment.  But  it  must 
be  shown  in  every  particular  case  that  the  service  is  of  varying 
value.  From  the  public  standpoint  in  other  words  the  burden 
of  proof  must  rest  on  the  railways.  Charging  what  the  traffic 
will  bear  is  just,  but  its  application  is  so  elastic  that  the  justice 
must  be  demonstrated  in  each  instance/  To  leave  the  applica- 
tion of  the  principle  to  the  discretion  of  the  railway  results  in 
the  chaotic,  almost  barbaric,  condition  of  actual  charges  during 
railway  wars.  The  only  rational  method  to  reconcile  public  and 
private  interests  is  to  lay  down  the  rule  of  equal  treatment  for 
all  persons  and  places,  and  to  admit  the  principle  of  value  as  a 
necessary  infraction  of  the  rule.  But  the  necessity  of  the  in- 


30  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

fraction  must  be  shown  before  its  legitimacy  is  accepted.  The 
principle  of  differential  rates  is  just;  all  differential  rates  are 
not  just. 

The  question  hence  arises  :  How  far  are  these  differential  rates 
allowable ;  to  what  extent  should  local  discrimination  be  prac- 
tised ?  We  are  confronted,  in  other  words,  by  the  problem  of 
the  long  haul  versus  the  short  haul,  the  through  traffic  versus 
the  local  traffic.  If  we  take  a  line  with  its  two  termini  as  com- 
petitive centres,  and  a  third  point  intermediate  between  the 
two,  and  not  subject  to  the  same  competition,  we  may  have 
three  principal  forms  of  differential  rates  : 

1.  The  rate  per  ton-mile  from  New  York  to  Buffalo  may  be 
<*/       less  than  the  rate  per  ton-mile  from  New  York  to  Rochester, 

and  yet  the  aggregate  charge  to  Buffalo  may  be  greater  than 
the  aggregate  charge  to  Rochester. 

2.  The  rate  per  ton-mile  from  New  York  to  Buffalo  may  more 
.      than  cover  mere  movement  expenses,  and  yet  be  so  much  less 

than  the  rate  per  ton-mile  from  New  York  to  Rochester  that  the 
aggregate  charge  to  Buffalo  may  be  slightly  less  than  the  aggre- 
gate charge  to  Rochester. 

3.  The  rate  per  ton-mile  from  New  York  to  Buffalo  may  be 
so  low  that  it  will  not  even  cover  actual  movement  expenses, 
and  the  aggregate  charge  to  Buffalo  will  be  considerably  less 
than  the  aggregate  charge  to  Rochester. 

The  third  case  occasions  but  little  embarrassment.  Such 
a  practice  manifestly  cannot  be  defended  even  from  the 
standpoint  of  sound  railway  practice.  For  new  or  through 
business,  as  we  saw,  any  rate  above  the  additional  cost  of  the 
new  business  is  a  paying  rate.  It  is  defensible  on  the  theory 
of  value,  because  it  contributes  to  the  fixed  expenses  and  thus 
diminishes  the  burden  or  rate  on  the  old  business.  But  if  the 
rate  falls  below  the  expense  of  the  additional  business,  it  un- 
doubtedly becomes  a  losing  rate.  It  contributes  nothing  to 
fixed  expenses,  but  actually  requires  an  additional  charge  on  the 
old  business  to  make  good  the  fixed  expenses.  The  justification 
of  differential  rates  thus  entirely  falls  away.  No  theory  of  value 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  31 

can  require  one  shipment  to  be  charged  unduly  high  rates  in  order 
to  transport  another  shipment  at  less  than  actual  cost.  This 
would  carry  the  principle  of  compensation  beyond  all  reasonable 
bounds.  .  The  only  possible  exception  from  the  railway  stand- 
point would  be  to  reduce  rates  temporarily  below  cost  of  service 
in  order  to  build  up  a  certain  locality,  and  thus  ultimately  de- 
velop paying  traffic.  The  present  loss  may  create  a  future  gain. 
But  from  the  public  standpoint  this  would  be  inadmissible.  To 
raise  local  rates  in  order  to  decrease  rates  to  competitive  points 
below  additional  cost  of  the  new  business  is  theoretically  inde- 
fensible. The  minimum  rate  should  never  fUll  below  the  move- 
ment expenses.  Any  differential  rate  below  this  point  is  illegiti- 
mate, and,  we  may  add,  comparatively  rare,  because  disastrous 
to  the  railway. 

We  come  to  the  second  case,  where  a  higher  aggregate  charge 
is  made  for  the  short  haul  than  foK  the  long  haul.  At  first 
blush  such  a  practice  seems  a  flagrant  offence.  We  are  tempted 
to  exclaim :  This  inverts  the  natural  order  of  things ;  it  must  be 
stopped  at  all  hazards.  But  the  matter  is  not  quite  so  simple. 

It  is  maintained  that  lower  charges  on  short  hauls  remove  the 
geographical  advantages  of  localities,  and  since  the  termini  of  a 
road  are  generally  larger  cities,  tend  to  unduly  increase  the  ad- 
vantages of  the  large  as  against  the  small  places.  The  same 
argument,  however,  is  applicable,  although  in  a  slighter  degree, 
to  any  differential  rates.  They  all  discriminate  against  some 
localities  in  favor  of  others.  For  the  purposes  of  the  argument 
we  may  treat  all  differential  rates  together. 

It  may  indeed  be  confessed  that  differential  rates  do  some- 
times remove  geographical  advantages.  But  it  does  not  follow 
that  such  a  practice  is  always  reprehensible.  There  is  no  such 
thing  at  a  natural,  inviolable  geographical  advantage.  There 
are  no  vested  rights  in  situation.  One  town  may  be  connected 
with  the  coast  only  by  a  turnpike ;  another  town  further  distant 
may  have  the  good  fortune  to  see  a  railway  built  through  its 
limits.  Has  the  former  any  cause  to  complain  because  it  is 
robbed  of  the  benefits  of  its  hitherto  advantageous  situation  ? 
A  village  ten  miles  distant  from  a  metropolis  has  been  supply- 


32  POLITICAL  SCIENCE  QUARTERLY,  [VOL.  II. 

ing  it  with  garden-produce.  Is  there  any  essential  injustice 
in  allowing  villages  forty  or  fifty  miles  distant  to  compete  for 
the  same  market  —  a  competition  possible  only  through  differ- 
ential rates  ?  In  fact,  the  object  of  all  improved  means  of 
transportation  is  to  annihilate  distance,  to  minimize  the  differ- 
ences of  situation.  Maintenance  of  original  differences  of  situ- 
ation implies  equal  mileage  rates.  It  would  render  impossible 
all  but  local  business  in  the  vast  mass  of  commodities ;  it  would 
again  turn  our  western  fields  into  barren  wastes.  Differential 
rates  widen  the  field  of  supply ;  they  increase  the  specialization 
of  wants,  and  create  the  possibility  of  satisfying  these  wants,  so 
characteristic  of  modern  industrial  society.  Opposition  to  local 
discrimination  arises  from  viewing  solely  the  interests  of  the 
producer ;  rational  economics  lead  us  to  consider  also  the  con- 
sumer. Opposition  to  differential  rates  is  based  on  the  sup- 
posed welfare  of  a  particular  class  or  section  of  producers ;  a 
wise  national  economy  will  ponder  over  the  interests  of  the 
whole  community,  over  the  prosperity  of  the  entire  country, 
irrespective  of  sectional  jealousies.  If  differential  rates  are  so 
arranged  that  distant  producers  are  enabled  to  compete  with 
local  producers,  the  latter  indeed  may  see  their  profits  cur- 
tailed, but  the  former  will  see  their  profits  increased,  and  the 
consuming  public  as  a  whole  will  evidently  gain.1  There  is  no 
absolute  proprietary  right  in  situation. 

The  charge,  again,  that  differential  rates  increase  the  advan- 
tages of  large  cities  may  be  admitted,  but  without  any  neces- 
sary imputation  of  injustice.  It  may  be  urged  that  differential 
rates  do  not  at  all  differ  from  preferential  rates ;  that  all  per- 
sonal discriminations  are  wrong  because  they  increase  the 
advantages  of  the  large  shipper,  and  that  all  local  discrimina- 
tions are  wrong  because  they  increase  the  advantages  of  the 
large  city.  But  such  an  analogy  is  essentially  defective.  Two 
or  more  shippers  have  a  positive  right  to  equal  treatment.  A 
common  carrier  must  not  assume  the  privilege  of  deciding 
between  them.  The  common  law  and  common  justice  demand 

1  Cf.  the  recent  complaints  of  California  producers  and  manufacturers  at  being  shut 
out  of  Eastern  markets  by  the  operation  of  the  Interstate  Commerce  act. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  33 

equality  of  treatment  for  similar  services.  But  in  the  case  of 
localities  there  is  no  such  indefeasible  right.  Differential  rates 
which  increase  the  advantages  of  large  cities  are  due  simply  to 
the  fact  that  these  cities  are  competitive  centres.  The  discrim- 
ination is  the  result  of  the  competition.  To  avoid  the  discrim- 
ination, you  must  avert  the  competition,  whether  by  rail  or 
water.  The  building  of  an  additional  line  temporarily  increases 
the  advantages  of  the  terminus,1  for  every  new  railway  alters 
in  some  degree  the  relative  advantages  of  situation.  The 
local  points  simply  pay  the  penalty  of  not  being  competitive 
points,  and  to  accord  all  local  points  the  same  benefits  as  com- 
petitive points  would  be  to  invert  the  normal  development. 
Differential  rates  in  such  cases  maintain  the  natural  advan- 
tages of  situation,  while  pro  rata  charges  would  here  invert  the 
geographical  advantages.  Equality  between  persons  is  right- 
fully demanded  because  the  services  are  similar;  equality  be- 
tween places  is  not  always  necessary,  because  the  services  are 
sometimes  dissimilar.  The  ability  of  long-distance  freight  to 
bear  the  charges  diminishes  faster  than  the  distance  increases.2 
But  of  course  this  view  does  not  justify  all  differential  rates. 
The  abuses  have  often  been  outrageous,  the  methods  undeserv- 
ing of  palliation.  Local  interests  have  been  disregarded,  and 
the  discriminations  so  conducted  as  to  ruin  whole  businesses  or 
towns  in  order  to  build  up  others.  It  is  not  necessary  to 
ascribe  illicit  motives  to  the  railway  managers,  although  even 
such  examples  have  not  been  wanting  in  our  history.  They 

1  Temporarily,  i.e.,  until  some  combination  is  effected  between  the  rival  lines;  and 
such  a  combination  is  sure  to  ensue  in  the  shape  of  a  pool,  an  arrangement,  or  a  con- 
solidation.    If  there  is  water  or  foreign  competition,  the  effect  may  be  permanent 
instead  of  temporary. 

2  The  English  courts  at  first  interpreted  Cardwell's  Traffic  act  of  1854  in  the  above 
sense.     The  clause  reads :  "  No  company  shall  make  or  give  any  undue  or  unreason- 
able preference  or  advantage  to,  or  in  favor  of,  any  particular  person  or  company,  or 
any  particular  description  of  traffic  in  any  respect  whatsoever."     The  courts  held  that 
this  demand  for  equality  of  treatment  applies  only  to  persons;   but  that  nothing  pre- 
vents the  railways  from  favoring  one  class  of  traders,  or  one  town,  or  one  portion  of 
their  traffic,  provided  the  conditions  are  the  same  for  all  persons,  and  for  the  benefit 
of  the  railway.     See  the  decisions  in  Shelford,  Law  of  Railways  (4th  ed.),  I,  166- 
174.    Cf.  also  the  English  Parliamentary  Report  for  1872  (Joint  Select  Committee  on 
Railway  Companies  Amalgamation),  p.  xiii. 


TJHIVBRSIT7 


34  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

have  often  been  forced  into  unjust  discrimination  by  the  stress 
of  competition  and  the  instinct  of  self-preservation.  But  rail- 
way officials  commit  a  great  mistake  in  calling  all  local  discrim- 
inations just  because  they  are  the  effect  of  competition,  precisely 
as  the  demagogues  err  in  opposing  undeniably  valid  discrimina- 
tions and  at  the  same  time  upholding  competition.  Competition 
is  made  to  cover  a  multitude  of  sins.  From  the  standpoint  of 
railway  profits,  all  actual  differential  rates,  unless  where  railways 
carry  at  less  than  hauling  expenses,  may  indeed  be  defensible ; 
but  from  the  public  standpoint  of  national  prosperity  and  the 
equable  development  of  all  sections,  many  of  them  may  easily 
be  convicted  of  injustice.1  Railway  profits  and  public  interests 
do  not  always  go  hand  in  hand.  The  possible  diversity  of  in- 
terest renders  some  form  of  governmental  supervision  abso- 
lutely imperative.  Untrammelled  liberty  has  been  tried  in  the 
balance  and  found  wanting.  Private  actions  which  so  materi- 
ally affect  public  interests  must  be  subject  to  review  and  correc- 
tion at  the  hands  of  some  public  authority. 

The  main  limitation  on  the  practice  of  differential  rates  hith- 
erto has  been  the  enactment  of  short-haul  laws. 

The  short-haul  system  admits  differential  rates,  but  prescribes 
that  the  aggregate  charge  to  any  intermediate  point  shall  not 
exceed  the  aggregate  charge  to  the  final  point;  the  entire  dis- 
tance must  never  be  charged  less  than  any  part  of  it.  As  a 
principle,  it  is  in  itself  legitimate.  It  tends  to  check  the  undue 
extension  of  the  practice  of  differential  rates.  For  although,  as 
we  hatfe  seen,  there  is  no  vested  interest  in  geographical  advan- 
tages, it  becomes  an  anomaly  to  charge  to  a  way-station  the  rate 

1  Thus  Alexander,  Railway  Practice  (1887),  p.  14,  says:  "The  competition  which 
gives  birth  to  such  discriminations  determines  also  their  sizes,  or  the  extent  to  which 
they  must  go.  What  are  the  rates  to  intermediate  points  has  nothing  to  do  with  the 
case."  Expressed  in  this  general  way,  the  principle  is  manifestly  indefensible,  for  it 
would  justify  transportation  to  competitive  centres  at  less  than  actual  hauling  ex- 
penses. It  must  be  remembered  that  railway  profits  are  no  excuse  for  injustice  to  the 
public.  So  Fink,  Argument  before  Senate  Committee  on  the  Reagan  Bill  (1879),  p. 
20,  claims  that  competition  would  justify  a  charge  of  #1.50  a  ton  from  A  to  B,  and  of 
$3.00  from  A  to  an  intermediate  point,  C.  It  is  these  exaggerated  claims  that  arouse 
the  ire  of  the  public.  For  the  claims  of  the  railway  antagonists  in  England,  see  Pope, 
Railway  Rates  and  Radical  Rule  (li 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  35 

to  a  competing  point  further  on,  plus  the  additional  rate  from 
the  competing  point  back  to  the  way-station.  This  amounts,  in 
fact,  to  making  an  extra  charge  for  not  transporting  the  goods 
to  a  more  distant  place.1  Put  in  this  way,  the  hardship  is 
apparent.  As  a  general  rule,  the  short-haul  principle  should 
be  followed. 

But  a  categorical  and  absolute  prohibition  of  charging  more 
for  the  short-haul  would  be  of  dubious  value.  If  the  law  could 
be  applied  to  all  media  of  transportation,  waterways  as  well  as 
railways,  foreign  as  well  as  home  railways,  then  the  matter 
would  be  simplified.  But  as  long  as  such  competition  exists, 
the  anomalies  cannot  be  entirely  removed.  The  attempt  to  do 
so  by  law  would  simply  decrease  the  profits  of  the  railway  with- 
out improving  the  condition  of  the  public.  New  York  and  New 
Orleans  are  connected  by  water  as  well  as  by  rail.  The  railway 
charges  cannot  exceed  the  water  rates  by  more  than  a  definite 
amount,  even  though  such  charges  only  give  a  slight  profit 
above  movement  expenses,  and  by  no  means  cover  the  total  cost 
of  service.  The  charges  to  New  Orleans  are  less  than  to  an  in- 
termediate point,  X.  What  would  be  the  effect  of  a  short-haul 
law  ?  Rates  to  X  would  be  lowered,  or  New  Orleans  rates 
would  be  increased.  If  rates  to  X  are  lowered,  the  profits  of 
the  railway  will  be  seriously  curtailed,  and  it  is  questionable 
whether  it  could  defray  its  expenses  at  all.  The  railway  will 
hence  far  prefer  to  raise  the  New  Orleans  rates,  as  on  the  whole 
less  injurious.  If  New  Orleans  rates  are  raised,  the  water  lines 
will  take  all  the  traffic,  and  the  rates  to  X  will  have  to  be  in- 
creased still  more.  For  the  railway  will  now  have  no  New 
Orleans  business  to  contribute  to  its  fixed  expenses,  and  will 
have  to  meet  these  by  the  proceeds  of  the  local  business  alone. 
The  local  discrimination  would  hence  be  increased,  for  actual 
rates  to  New  Orleans  by  water  remain  as  before.  No  one  will 
gain  except  the  steamship  company. 

What  is  true  of  New  Orleans  is  true  of  all  points  subject  to 
water  competition,  or  influenced  through  their  connection  by 
water  competition.  The  same  considerations  apply  to  the  com- 

1  Cf.  Adams,  Railroads,  their  Origin  and  Problems  (1879),  p.  124. 


36  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

petition  of  foreign  railways.     A  short-haul  law  applicable  to  the 
United    States   but  not   to  Canada  would  simply  transfer  the 
profits  of  the  American  railways  to  the  Canadian,  without  de- 
..  creasing  the  local  discriminations. 

Here  again  the  principle  is  correct,  but  the  exact  application 
.  *  a  matter  of  difficulty.  It  is  a  conflict  between  railway  profits 
and  impartial  justice.  If  the  short-haul  principle  in  any  given 
case  decreases  profits,  but  not  to  such  an  extent  as  to  virtually 
j  ruin  or  handicap  the  railway,  then  it  may  safely  be  applied.  In 
many  cases  the  lowering  of  local  rates  would  not  have  this  bane- 
ful result,  for  the  reason  that  the  main  traffic  of  the  railway  is 
the  through  traffic.  This  explains  why  many  railways  are  now 
reducing  their  local  charges.  The  short-haul  principle  will  not 
materially  affect  their  earnings.  But  in  many  other  cases  the 
above  examples  will  hold  good.  The  through  rates  will  have  to 
be  advanced,  and  the  railways  will  suffer  without  any  benefits 
to  the  public,  or,  in  fact,  to  any  one  but  the  rival  transportation 
agencies.  Both  railway  officials  and  railway  antagonists  are 
hence  wrong.  The  demagogues  are  wrong  because  they  fail  to 
see  the  limitations  of  the  short-haul  principle  ;  the  railway  offi- 
cials are  wrong  because  they  set  forth  competition-  as  a  reason 
for  all  existing  infractions  of  the  principle.  Competition  be- 
comes a  valid  reason  only  where  the  short-haul  system  implies  a 
necessary  choice  between  ruinous  curtailment  of  profits  and 
complete  loss  of  the  business.  The  limit  is  an  elastic  one,  and 
precisely  on  this  account  do  we  need  some  public  authority  to 
define  the  justice  of  the  limit  in  each  particular  case.  But  an 
inflexible  law,  enforcing  the  short-haul  principle  in  all  cases, 
would  be  neither  wise  nor  successful. 

Prior  to  the  enactment  of  the  Interstate  Commerce  act,  sev- 
eral states  already  had  short-haul  laws  on  the  statute  books. 
According  to  the  Commutation  of  Tonnage  act  of  1861,  a  con- 
tract between  the  state  of  Pennsylvania  and  the  Pennsylvania 
Railroad  Company,  the  short-haul  provision  was  agreed  to.  But 
neither  this  agreement  nor  the  law  of  1883,  which  incorporated 
the  same  principle,  was  ever  thoroughly  carried  out.1  The 

1  Cf,  the  testimony  of  Pennsylvania  shippers  in  Cullom  Rep.,  Test.  (Norris),  pp. 
53°-535>  (Welsh)  p.  460,  (Wood)  pp.  478-480,  etc. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  37 

Granger  movement  of  1870-1875  resulted  in  the  passage  of  very 
stringent  laws  in  the  Western  States,  some  of  them  being  virtu- 
ally pro  rata  laws.  Many  of  the  specifically  short-haul  laws,  as 
that  of  1873  in  Ohio,  remained  dead  letters,  while  the  more 
stringent  laws,  which  absolutely  fixed  rates  or  empowered  the 
commissioners  to  fix  rates,  were  enforced  so  literally  as  to  pro- 
duce a  revulsion  in  public  feeling  and  a  speedy  repeal  of  the 
laws.1  The  same  is  true  of  the  more  recent  short-haul  laws  in 
the  North-west,  as,  e.g.,  the  Doane  law  of  1881  in  Nebraska. 
The  railways  enforced  it  so  strictly  by  raising  local  rates  that 
the  public  began  to  regard  it  as  a  burden,  not  a  relief.  As  a 
result,  the  law  is  now  practically  a  dead  letter.2  Several  of  these 
laws  were,  however,  something  more  than  mere  short-haul  laws. 
They  provided,  in  general,  that  a  shorter  distance  should  not  be 
charged  more  than  a  longer  distance  on  the  same  line,  while 
according  to  a  true  short-haul  law  the  shorter  distance  must  be 
included  within  the  longer  distance.  This  distinction  was  well 
expressed  in  the  Massachusetts  law  of  1874,  which  reads  as 
follows  : 

No  railroad  corporation  shall  charge  or  receive  for  the  transportation 
of  freight  to  any  station  on  its  road  a  greater  sum  than  is  at  the  time 
charged  or  received  for  the  transportation  of  the  like  class  and  quantity 
of  freight  from  the  same  original  point  of  departure  to  a  station  at  a 
greater  distance  on  its  road  in  the  same  direction? 

But  this  law,  as  the  phraseology  denotes,  applies  only  to  hauls 
from  a  terminus  to  the  way-stations.  It  does  not  apply  in  the 
other  direction,  i.e.,  from  the  way-stations  to  the  terminus. 
Possibly  on  this  account,  but  probably  because  of  the  smaller 
degree  of  competitive  traffic  in  the  state,  it  has  been  found  pos- 
sible to  enforce  the  law  strictly.4 

The  New  York  commission  made  a  careful  study  of  the  prin- 
ciple in  1884.  Their  conclusion  is  expressed  in  these  words  :5 

1  So  in  Wisconsin,  Iowa,  Michigan,  Minnesota. 
2Cullom  Committee  Report,  Test.  (Rosewater),  pp.  1133-34. 
8  Public  Statutes,  chap.  112,  §  190. 

4  Railroad  Commissioners'  Report,  1885,  and  1886,  p.  35,  in  re  Housatonic  Rail- 
road Co.     See  also  Cullom  Rep.,  Test.  (Russell),  p.  305. 
6  Report  on  the/r0  rata  bill  (1884),  P»  I2°* 


38  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

Railroads  should  not  as  a  general  rule  charge  more  between  a  ter- 
minal and  an  intermediate  point,  for  a  like  class  and  quantity  of  freight, 
than  is  charged  between  such  terminal  and  a  more  distant  point,  even 
though  at  such  more  distant  point  there  may  be  railroad  or  water  com- 
petition, unless  railroads  can  affirmatively  establish  such  circumstances 
governing  such  competition  as  justify  the  higher  charge  for  the  shorter 
distance. 

This  is  a  conservative  and  judicious  conclusion,  which  shuts 
out  oh  the  one  hand  the  extravagant  claims  of  the  railway  offi- 
cials, and  on  the  other  the  short-sighted  demands  of  the  profes- 
sional reformers.  Each  case  must  be  judged  on  its  own  merits. 
Thus  in  Moon  vs.  The  New  York,  Ontario  and  Western,1  compe- 
tition with  a  rival  railway  was  held  not  sufficient  to  justify  the 
infraction  of  the  principle.  In  Foot  et  al.  vs.  The  Utica  and 
Black  River,2  it  was  held  that  higher  charges  might  sometimes 
be  made  to  intermediate  points,  but  that  the  peculiar  circum- 
stances were  not  sufficient  in  this  case.  In  Harding  and  Hollis 
vs.  Rome,  Watertown,  and  Oswego,3  water  competition,  which 
would  have  given  the  business  to  foreign  companies,  was  held 
to  be  a  valid  reason  for  the  infraction  of  the  rule.  The  short- 
haul  principle  as  administered  in  New  York  is  thus  no  hard  and 
fast  rule. 

European  experience  all  tends  to  the  same  result.  In  France 
the  short-haul  principle  is  known  as  the  clause  des  stations 
non  denommees,  and  has  been  in  force  since  1864.  The  rail- 
way tariffs  must  be  submitted  to  the  administration,  and  in 
virtue  of  this  power  of  approval  or  homologation,  the  govern- 
ment has  procured  the  insertion  and  maintenance  of  the  short- 
haul  principle.4  But  this  is  applicable  only  to  the  general  tariffs, 
and  is  perfectly  enforceable  there  because  of  the  almost  utter 
absence  of  interior  competition  —  a  fact  due  to  the  existence  of 
territorial  ization  or  division  of  the  field  among  the  separate 
•companies.  The  principle  is  not  applicable  to  any  case  where 

1N.  Y.  Railroad  Commissioners'  Report  (1885),  pp.  73-76. 

2  Report  (1884),  pp.  94-131,  especially  pp.  106  and  119. 

3  Report  (1884),  p.  1 60. 

4Aucoc,  Conferences  sur  le  droit  administratif  (2me  ed.,  1882),  III.  748.  Cf. 
Picard,  Chemins  de  fer  fran9ais  (1885),  II,  444;  III,  587. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  39 

there  is  any  danger  of  foreign  competition.  The  tarifs  de 
transit,  or  through  tariffs  for  goods  passing  through  France  on 
the  way  to  another  state,  and  the  tarifs  cT exportation,  or  through 
rates  for  goods  destined  for  exportation,  are  exempted  from  the 
application  of  the  principle,  so  that  greater  charges  are  per- 
mitted to  intermediate  points.  This,  it  must  be  remembered,  is 
allowed  by  public  authority  and  in  the  public  interest.1 

In  Germany,  where  the  railways  are  almost  exclusively  owned 
by  the  state  governments,  and  interior  competition  thus  mini- 
mized, there  is  likewise  no  hard  and  fast  rule.  The  short-haul 
principle,  or  Princip  dcr  hintergelegenen  Stationen,  is  accepted 
as  a  general  rule  in  Prussia,  but  exceptions  may  be  admitted  by 
the  minister  of  public  works.2  The  Bundesrath  of  the  empire 
also  enunciated  the  same  principle,  but  expressly  inserted  the 
proviso  that  particular  circumstances  might  justify  an  infrac- 
tion of  the  rule.3  These  exceptions  are  of  frequent  occurrence.4 
The  short-haul  principle  does  not  apply  to  through-transit  rates, 
to  import  or  export  tariffs,  or  to  any  competitive  centres  where 
the  competition  is  caused  by  waterways  or  foreign  railways. 
After  the  purchase  of  the  Prussian  railways  by  the  state  a  few 
years  ago,  the  attempt  was  made  to  enforce  the  short-haul  rule 
strictly,  but  it  ignominiously  failed.5  The  Scehafen-Ausnahme- 
Tarify  and  a  large  number  of  other  special  rates  permit  charges 
in  derogation  of  the  short-haul  principle.  Even  the  earnest  de- 
fenders of  state  railways  confess  that  numerous  exceptions  are 
indispensable.6 

In  Switzerland  the  short-haul  principle  is  maintained  in  a 
recent  report  of  the  Diet,  but  exceptions  are  permitted  in  the 

1  The  accounts  of  European  practice  in  the  New  York  Commission  Report  on  the 
pro  rata  bill  are  inexact  and  untrustworthy. 

2  Cf.  the  ministerial  rescripts  in  Kronig,  Die  Differentialtarife  der  Eisenbahnen. 

3  Bundesrath,  Sitzung  vom  6.  April,  1877. 

4  "  Ziemlich  haufig  "  is  the  phrase  used  by  a  prominent  German  official  in  a  letter 
to  me.     The  matter  is  decided  in  every  case  "  auf  Grund  der  jedesmal  vorliegenden 
thatsachlichen  Verhaltnisse." 

5  Cf.  especially  the  test,  of  Forbes  in  English  Select  Committee  Rep.  (1882). 
Evid.  169  et  seq. 

6  Ulrich,  Eisenbahn-Tarifwesen  (1886),  pp.  150-152. 


40  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

case  of  foreign  competition.1  In  Austria  the  short-haul  clause 
is  inserted  in  many  of  the  railway  charters,  but  both  in  the 
state  and  in  the  private  lines  the  exceptions  are  exceedingly 
numerous.2  In  Belgium  and  Holland,  where  the  laws  literally 
interpreted  enjoin  mileage  rates,  the  vast  majority  of  actual 
charges  are  arranged  according  to  special  rates,  many  of  which 
permit  greater  charges  for  the  shorter  distances.3  In  Italy 
similar  special  rates  may  be  approved  by  the  government.4 
Thus  in  no  country  where  the  tariffs  are  fixed  by  the  state  or 
subject  to  public  control  is  the  short-haul  principle  an  absolute 
rule. 

In  England,  indeed,  the  short-haul  principle  has  been  affirmed 
by  the  courts,5  and  the  railway  commission  has  of  late  gone 
even  further  in  its  opposition  to  differential  rates.  In  the  cele- 
brated Broughton  and  Plas  Power  Coal  Company  case  it  was 
held  that  the  charge  for  the  longer  distance  must  not  only  be 
greater  than  for  the  shorter  distance,  but  must  actually  more 
than  suffice  to  cover  the  total  cost  of  the  extra  service.6  But 
these  decisions  have  had  very  little  influence  on  the  actual 
arrangements  of  tariffs  in  Great  Britain,  and  have  been  se- 
verely criticised  in  the  parliamentary  commissions.7  The  decis- 
ions, moreover,  are  by  no  means  uniform,  and  in  a  very  recent 
case  it  was  held  by  the  court  that  differential  rates  are  perfectly 
legitimate  if  in  the  one  case  the  rate  is  a  local  rate,  and  in  the 
other  simply  a  portion  of  a  through  rate.8  It  is  not  "  under  sub- 

1  Bericht    des    Bundesrathes  an    die    Bundesversammlung,    Nov.   23,   1883;    in 
Hurlimann,  Die  eidgenossische  Eisenbahngesetzgebung  (1887). 

2  Schreiber,  Das  Tarifwesen  der  Eisenbahnen  (1884),  S.  181,  191,  199.     Cf.  NSrd- 
ling,  Die  Selbstkosten  des  Eisenbahntransports  (1885),  S.  219. 

3  Jacqmin,  Etude  sur  les  chemins  de  fer  des  Pays-bas  (1882),  p.  87;    Nicolai,  Les 
chemins  de  fer  de  PEtat  en  Belgique  (1885),  p.  29. 

4  Agreements  of  1885  with  the  Mediterranean  lines,  cap.  4,  §  39,  44. 

5  Cf.  Budd  vs.  London  and  Northwestern  Railway  Co.,  36  L.  T.  N.  S.  802.     This 
was  a  case  of  sea  competition.     The  decision  was  opposed  to  the  principle  of  the 
older  decisions  under  CardwelFs  act. 

6  Railway  Commission,  Tenth  Report  (1883). 

7  Select  Com.  (1882),  Evidence,  pp.   71,  89;    especially  the  celebrated  cases  of 
Evershed  and  the  Denaby  main. 

8  Hull,  Barnaby  and  West  Riding  Junction  Railway  vs.  Yorkshire  and  Derbyshire 
Coal  Co. 


No.  2.]  THE  INTERSTATE  COMMERCE  LAW.  41 

stantially  similar  circumstances."  Lord  Stanley's  bill  of  1887 
in  fact  expressly  provides  that  the  justice  of  differential  rates 
should  be  measured  by  the  necessity  of  securing  the  traffic.1 

We  are  thus  prepared  to  pass  an  opinion  on  the  Interstate 
Commerce  law.  The  short-haul  clause  reads  as  follows : 

That  it  shall  be  unlawful  for  any  common  carrier  subject  to  the  pro- 
visions of  this  act  to  charge  or  receive  any  greater  compensation  in  the 
aggregate  for  the  transportation  of  passengers  or  of  like  kind  of  prop- 
erty, under  substantially  similar  circumstances  and  conditions,  for  a 
shorter  than  for  a  longer  distance  over  the  same  line,  in  the  same  direc- 
tion, the  shorter  being  included  within  the  longer  distance.  .  .  .  Pro- 
vided, however,  that  upon  application  to  the  commission  appointed 
under  the  provisions  of  this  act,  such  common  carrier  may  in  special 
cases,  after  investigation  by  the  commission,  be  authorized  to  charge 
less  for  longer  than  for  shorter  distances  for  the  transportation  of  pas- 
sengers or  property ;  and  the  commission  may,  from  time  to  time,  pre- 
scribe the  extent  to  which  such  designated  common  carrier  may  be 
relieved  from  the  operation  of  this  section  of  this  act. 

It  is  improbable  that  the  commission  will  interpret  the  act  in 
the  sense  that  the  words  "under  substantially  similar  circum- 
stances and  conditions"  justify  all  existing  differential  rates  due 
to  competition.  This  would  practically  emasculate  the  law. 
But  on  the  other  hand  an  analysis  of  the  principles  of  rates  and 
the  results  of  European  experience  have  shown  us  that  any 
attempt  to  apply  the  law  in  all  cases  would  be  ruinous.  A  strict 
enforcement  of  the  short-haul  clause  would  most  certainly 
result  in  general  discontent  and  a  speedy  repeal.  The  safety- 
valve  consists  in  the  discretion  afforded  to  the  commissioners, 
and  upon  them  the  success  or  failure  of  the  law  depends.  The 
act  is  an  expression  of  a  correct  principle,  but  the  limitations 
of  the  principle  are  no  less  obvious.  The  country  is  to  be 
congratulated  on  the  legislative  recognition  of  the  rule;  let 
us  trust  that  there  may  be  equal  cause  for  congratulation  on  the 
official  recognition  of  its  limitations. 

Our  preliminary  conclusion  may  now  be  formulated.  Under 
a  system  of  free  competition  among  private  railways  the 

1  Railway  and  Canal  Traffic  bill,  §  25,  sec.  2. 


42  POLITICAL  SCIENCE  QUARTERLY. 

principle  of  value  of  service  or  charging  what  the  traffic  will 
bear  is  the  only  rational  method,  calculated  to  give  the  most 
efficient  service  and  the  greatest  profits.  But  the  existence  or 

{possibility  of  the  abuse  of  power  requires  the  restriction  of 
this  unlimited  liberty  in  the  public  interest.  The  reconciliation 
of  the  railways  and  the  public  can  take  place  only  through  the 

\interposition  of  public  authority.  The  public  authority  must 
lay  down  the  rule  of  equal  treatment  as  the  fundamental  doc- 
trine, but  must  recognize  the  principle  of  value  as  a  reason  for 
departing  from  the  doctrine  in  any  individual  case.  Omission  of 
either  duty  necessarily  entails  injustice  or  inefficiency.  The 
short-haul  clause  is  a  partial  recognition  of  the  demand  for 
equal  treatment ;  the  discretion  given  the  commission  is  im- 
plicitly a  partial  recognition  of  the  theory  of  value.  The  Inter- 
state Commerce  act  thus  accepts  the  principle  and  concedes  its 
limitations ;  in  this  respect  at  least  it  is  a  wise  and  judicious 
measure.  For  the  commission  to  ignore  the  limitations  in  the 
attempt  to  realize  the  principle  would  be  an  act  of  consummate 

folly. 

EDWIN  R.  A.  SELIGMAN. 


RAILWAY   TARIFFS   AND   THE  INTERSTATE 
COMMERCE   LAW. 


II. 


SCARCELY  second  in  importance  to  the  short-haul  clause 
of  the  national  law,  which  has  been  discussed  in  the  pre- 
ceding essay,1  is  the  section  which  prohibits  pooling.  What  is 
the  true  significance  of  pooling  ?  What  will  be  the  effect  of  the 
law  ?  To  give  a  correct  answer  we  must  enter  upon  a  consid- 
eration of  competition  in  general. 

And  here  we  are  immediately  confronted  by  the  two  funda- 
mental questions :  Is  free  competition  universally  beneficent  ? 
Is  free  competition  universally  existent  ? 

The  doctrine  of  free  competition  is  essentially  a  modern  idea. 

1  POLITICAL  SCIENCE  QUARTERLY,  June,  1887,  p.  223.  It  has  been  a  source  of 
great  satisfaction  to  me  that  the  Interstate  Commerce  commission  in  its  recent 
weighty  decision  has  taken  substantially  the  same  ground  as  that  occupied  in  my  first 
article.  The  chief  points  are  as  follows : 

"  First.  That  the  prohibition  in  the  fourth  section  against  a  greater  charge  for  a 
shorter  than  for  a  longer  distance  ...  is  limited  to  cases  in  which  the  circumstances 
and  conditions  are  substantially  similar. 

"  Third.  That  ...  in  case  of  complaint  for  violating  the  fourth  section  the  bur- 
den of  proof  is  on  the  carrier. 

"  Fifth.  That  the  existence  of  actual  competition  .  .  .  may  make  out  the  dissimi- 
lar circumstances  and  conditions  ...  in  the  following  cases : 

1.  When  the  competition  is  with  carriers  by  water  which  are  not  subject  to  the 
provisions  of  the  statute. 

2.  When  the  competition  is  with  foreign  or  other  railroads  which  are  not  subject 
to  the  provisions  of  the  statute. 

3.  In  rare  and  peculiar  cases  of  competition  between  railroads  which  are  subject 
to  the  statute,  where  a  strict  application  of  the  general  rule  of  the  statute  would  be 
destructive  of  legitimate  competition. 

"  Sixth.  .  .  .  The  fact  that  long-haul  traffic  will  only  bear  certain  rates  is  no  rea- 
son for  carrying  it  for  less  than  cost  at  the  expense  of  other  traffic."  —  In  re  The 
Louisville  &  Nashville  R.R.  Co.  et  a!.,  pp.  27-29. 


44  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

As  the  basis  of  nineteenth  century  economics  it  was  first  for- 
mulated by  the  Physiocrats  and  Adam  Smith.  It  is  entirely 
foreign  to  ancient  and  mediaeval  conceptions.  The  economy  of 
the  middle  ages  was  founded  on  the  idea  of  reasonable,  custom- 
ary price  —  the  justum  pretium  of  the  legists,  theologians,  and 
statesmen.  The  institutions  were  based  on  restrictions,  privi- 
leges, and  enforced  monopolies,  while  the  legislative  prohibitions 
were  not  entirely  the  product  of  class  selfishness  but  in  part 
the  recognized  expression  of  an  attempt  to  secure  distributive 
justice.  That  the  legislators  finally  overreached  themselves  and 
stifled  all  liberty  by  their  multifarious  restrictions  is  a  well- 
known  fact.  The  necessary  and  salutary  reaction  found  its 
theoretic  justification  in  the  "natural  law"  tenets  of  the  eigh- 
teenth century,  and  a  partial  realization  of  those  tenets  followed 
in  the  first  half  of  the  nineteenth  century.  The  idea  now  be- 
came current  that  a  reign  of  free  competition  and  its  logical 
correlative,  absolute  laissez  faire,  would  bring  about  a  harmony 
of  interests,  a  state  of  universal  bliss.  The  enthusiasm  of  Bas- 
tiat  and  McCulloch  was  natural  in  seeing  the  world  break  away 
from  the  shackles  of  mediaeval  restraint.  But  recent  experience 
has  demonstrated  the  falsity  of  their  anticipations  and  has  dis- 
closed serious  defects  in  the  regime  of  free  competition.  It  does 
not  always  work  evenly ;  it  often  secures  undue  advantages  to 
the  unscrupulous ;  it  has  given  birth  to  great  abuses  in  the  fac- 
tory system  and  the  fraudulent  speculation  of  modern  society. 
The  law  of  competition  is  not  always  beneficent. 

Furthermore,  it  does  not  exist  universally.  The  doctrine  de- 
\  pends  on  the  postulates  of  absolute  transferability  of  labor  and 
I  capital.  But  this  assumption  is  approximately  true  in  only  a 
few  instances,  absolutely  untrue  in  many  instances.  In  the  in- 
dustrial undertakings  of  the  present  day  the  capital  invested  is 
often  fixed,  not  circulating,  capital,  and  cannot  easily  be  trans- 
ferred to  a  more  lucrative  business.  It  is  difficult  to  gauge  even 
approximately  the  superior  profitableness  of  some  competitive 
enterprise ;  and  even  when  it  has  been  gauged,  it  is  still  more 
difficult  at  once  to  transfer  the  capital.  In  fact,  in  only  one 
department  of  business  life  does  the  doctrine  of  the  absolute 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  45 

play  of  free  competition  hold  good  —  in  the  stock  exchange 
of  modern  times.1 

John  Stuart  Mill  long  ago  called  attention  to  what  we  may 
term  economic  or  industrial  monopolies,  where  competition  is 
neither  illegal  nor  absolutely  shut  out  by  nature,  but  where 
it  is  shown  to  be  practically  undesirable  and  utterly  inefficient, 
thus  of  itself  giving  place  to  some  form  of  monopoly.2  Other 
writers,  and  especially  Farrer,3  have  attempted  to  analyze  these 
phenomena  and  show  why  the  law  of  competition  is  not  applica- 
ble. Certain  characteristics  are  common  to  them  all.  The 
industry  demands  a  large  amount  of  capital ;  it  supplies  a  neces- 
sary of  life  ;  the  article  furnished  is  local ;  the  industry  occupies 
a  peculiarly  favored  situation  ;  the  method  of  operation  requires 
unity  and  harmony  of  management ;  the  production  can  be 
largely  increased  without  a  proportionate  increase  of  capital. 
This  is  true  not  only  of  docks,  waterworks,  and  gasworks,  but 
of  all  media  of  transportation  —  turnpikes,  canals,  telegraph, 
post,  and  railways.  In  some  of  these  competition  has  never 
been  attempted ;  in  most  cases  it  has  been  tried,  but  has  miser- 
ably failed.  The  disappearance  of  competition  has  benefited  the 
companies  and  in  many  instances  also  the  public.  But  at  all 
events,  whether  beneficial  or  not,  competition  has  disappeared, 
and  combination  and  monopoly  have  resulted. 

The  chief  consideration  is  the  possibility  of  increased  pro- 
duction without  proportionate  increase  of  plant  or  capital.  To 
use  a  happy  phrase,  the  business  is  subject  to  the  law  of  in- 
creasing returns.4  The  traffic  on  a  railroad  may  be  doubled 
without  the  necessity  of  duplicating  roadbed,  track,  terminals, 
and  general  expenses.  Ten  lines  between  New  York  and 
Albany  would  not  benefit  the  public,  and  would  certainly  ruin 

1  This  explains,  as  Cohn  pointed  out,  why  Ricardo,  who  was  a  stock-exchange 
broker,  first  successfully  elaborated  the  theory  of  free  competition.     Untersuchungen 
liber  die  englische  Eisenbahnpolitik,  Bd.  II  (1875),  s-  3^4- 

2  Book  v,  ch.  xi,  §  ii;    Appleton's  ed.  1880,  vol.  ii,  p.  584. 

8  Cf.  Industrial  Monopolies,  Quarterly  Review,  October,  1870.  Also  Sax,  Die 
Verkehrsmittel,  Bd.  I,  S.  66  et  seq.,  and  Simon  Sterne,  Monopolies,  Lalor's  Cyclopae- 
dia of  Political  Science,  vol.  ii. 

4  H.  C.  Adams,  Relation  of  the  •  State  to  Industrial  Action,  Publications  of  the 
American  Economic  Association,  vol.  I  (1887),  p.  523. 


46  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

each  other.  One  line  judiciously  managed  can  perform  all  the 
work  at  far  less  cost.  The  railway  is  an  economic  monopoly ; 
the  inevitable  tendency  is  toward  fusion  and  single-headed 
management. .  ^ 

In  addition  to  these  economic  monopolies  proper,  we  find 
almost  every  department  of  wholesale  trade  at  present  taking 
the  form  of  industrial  combination.  To  maintain  that  prices 
are  everywhere  regulated  by  the  free  play  of  competition  is  no 
longer  permissible.  We  cannot  ignore  the  fact  that  producers 
find  it  to  their  interest  to  combine  and  agree  on  certain  prices 
less  than  which  it  shall  be  unlawful  to  ask  or  take.  Adam 
Smith  already  said :  "  People  of  the  same  trade  hardly  meet 
together  even  for  merriment  and  diversion,  but  the  conversation 
ends  in  a  conspiracy  against  the  public,  or  in  some  contrivance 
to  raise  prices."  Even  then  the  movement  had  begun  ;  to-day 
it  has  become  well-nigh  universal.  There  is  scarcely  a  trade 
throughout  the  land  without  its  combinations,  —  many  of  which 
in  the  last  few  months  have  taken  the  impalpable  form  of  trusts, 
in  the  endeavor  to  attain  corporate  advantages  without  assum- 
ing corporate  responsibilities.  There  are  really  four  classes  : 
combinations  to  limit  production,  to  regulate  prices,  to  regulate 
distribution,  to  divide  the  field.  Some  comprise  all  four  charac- 
teristics. To  describe  or  enumerate  them  is  needless  in  view 
of  the  recent  discussions  to  which  they  have  been  subjected.1 
But  the  facts  exist.  Prices  are  no  longer  determined  by  the 
action  of  free  competition,  but  by  the  artificial  manipulation  of 
these  industrial  combinations  or  partial  monopolies. 

Are  these  combinations  now  a  necessary  evil  ?  Are  they  an 
evil  at  all  ?  Here  it  will  be  necessary  to  revise  our  natural 
opinion  that  monopoly  is  always  injurious.  This  is  as  great  a 
mistake  as  to  affirm  that  competition  is  always  beneficent.  The 
characteristic  feature  of  modern  economy  is  that  articles  are 
produced  not  to  satisfy  any  particular  demand,  but  for  the  world 

1  Cf.  J.  B.  Clark,  Limits  of  Competition,  and  F.  H.  Giddings,  Persistence  of  Com- 
petition, POLITICAL  SCIENCE  QUARTERLY,  March,  1887,  pp.  45,  62.  Also  the  arti- 
cles of  H.  D.  Lloyd,  North  American  Review,  1884  and  1885.  For  Europe,  see 
Kleinwachter,  Die  Kartelle  (1883).  For  England,  Select  Committee  on  Railways 
(1882),  Evid.  qu.  3893;  (1881),  Evid.  qu.  16,376. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  47 

market.  Unregulated  production,  production  uncontrolled  by 
the  state  of  the  market,  overproduction  or  mistaken  production 
have  brought  about  the  modern  commercial  crises.  A  period  of 
large  profits  alternating  with  a  period  of  large  losses,  extremely 
low  prices  alternating  with  extremely  high  prices,  —  this  has 
been  the  history  of  modern  industry.  It  is  a  period  of  industrial 
anarchy. 

Combinations  are  designed  to  put  an  end  to  this  anarchy. 
They  do  away  with  the  excessive  fluctuations  of  prices,  per- 
forming much  the  same  function  as  legitimate  speculation.  Of 
course,  in  most  cases,  they  have  only  their  own  profits  in  view ; 
but  is  it  true,  as  Adam  Smith  thought,  that  they  are  always  a 
conspiracy  against  the  public  ?  A  careful  analysis  must  lead  us 
to  answer  no.  They  better  their  own  condition,  but  in  so  doing 
they  often  better  the  public  condition.  Steadiness  of  price  is 
better  than  fitful  fluctuations  in  price ;  regulation  of  production 
is  better  than  the  underproduction  or  overproduction  which  re- 
sults in  crises  ;  combination  is  preferable  to  "cut-throat"  compe- 
tition which  ruins  the  producer  without  benefiting  the  public. 

It  is  of  course  undeniable  that  there  are  possible  or  actual 
abuses  connected  with  these  combinations.  But  from  this 
simply  results  the  necessity  of  public  control.  We  have  the 
alternative :  Leave  the  combinations  alone  or  regulate  them. 
There  is  no  third  method.  We  may  prohibit  them,  but  we 
cannot  prevent  them.  If  we  make  them  illegal,  we  shall  simply 
make  them  secret.  We  cannot  prevent  two  men  from  agreeing 
not  to  compete  with  each  other.  Robert  Stephenson  truly  said, 
in  1853:  "Where  combination  is  possible,  competition  is  im- 
possible." l  The  whole  trend  of  modern  development  is  to 
substitute  the  large  for  the  small,  to  put  combination  in  the 
place  of  competition.  We  cannot  stop  the  progress ;  we  must 
recognize  it. 

The  question  thus  arises :  Shall  we  allow  these  associations 

1  This  phrase  was  not  coined  by  George  Stephenson,  as  Hadley,  Railroad  Trans- 
portation, p.  66,  erroneously  asserts,  but  by  his  son  Robert.  Cf.  Report  Select  Com- 
mittee on  Railway  and  Canal  Bills  (1853),  Evid.  qu.  885,  886,  p.  92.  This  is  a 
mistake  almost  universally  made. 


48  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

to  develop  as  they  will,  or  is  it  the  duty  of  the  public  to  inter- 
pose its  authority  and  to  regulate  what  it  cannot  prevent  ?     Put 

.  in  these  words,  the  answer  seems  plain.  We  must  recognize 
the  monopolies  as  existing  facts  but  hold  them  under  control. 
We  have  in  general  gone  on  the  opposite  theory.  We  have 
believed  in  the  universal  existence  and  beneficence  of  free  com- 
petion ;  we  have  wilfully  blinded  our  eyes  to  what  was  taking 
place  about  us ;  and  to-day  we  wake  up  only  to  recognize  the 
existence  of  these  gigantic  combinations.  To  legislate  against 
them  and  fall  back  again  on  the  specific  of  free  competition 
would  be  absolutely  futile.  Competition  has  had  its  day  and 
has  proved  ineffective.  Let  us  be  bold  enough  to  look  the  facts 
straight  in  the  face  and  not  shrink  from  the  logical  conclusions 
of  our  premises.  Recognize  the  combinations  but  regulate 

s  them. 

The  application  of  all  this  to  railways  is  plain.  As  a  regu- 
lator of  charges,  competition  between  railways  is  even  less 
effective  than  in  other  large  occupations.  The  doctrine  of 
transferability  of  capital,  partially  true  elsewhere,  is  absolutely 
false  here.  The  railway  possesses  all  the  elements  of  a  prac- 
tical monopoly.  So  obvious  are  the  advantages  of  agreement 
and  fusion,  that  whenever  a  railway  system  has  started  out  with 
competition  of  independent  lines  it  has  inevitably  resulted  in 
some  form  of  combination.  The  public  has  profited  no  less 
than  the  companies.  The  curse  of  free  trade  in  railways  has 
been  the  system  of  parallel  and  often  needless  lines.  An 
additional  road  between  two  terminal  points  frequently  rep- 
resents so  much  wasted  capital,  and  the  necessity  of  earning 
profits  on  this  swollen'  capital  simply  aggravates  the  burden  on 
the  public.  No  more  serious  blunder  has  been  made  than  to 
suppose  that  increased  competition  means  increased  facilities 
and  lower  charges.  The  competition,  while  it  lasts,  is  of  a 
desperate  character,  and  each  line  strains  itself  to  the  utmost 
to  obtain  the  business  which  is  only  sufficient  for  one.  Charges 
indeed  may  be  lowered  temporarily,  but  the  strenuous  attempt 
to  procure  the  traffic  gives  birth  to  the  very  worst  abuses  of 
railway  management  —  secret  personal  discriminations  and  im- 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  49 

>  S      .   '^  '       o" 

moderate  local  discriminations.  The  changes  are  violent,  the  con- 
ditions unstable.  Reduction  of  rates  is  sometimes  carried  to  such 
a  point  that  not  even  operating  expenses  are  met,  for  the  reckless 
and  bankrupt  roads  feel  no  need  of  earning  any  fixed  charges. 
The  railway  wars,  which  are  the  logical  and  extreme  manifesta- 
tions of  railway  competition,  thus  exhaust  the  companies  and 
afford  but  a  dubious  relief  to  the  public.  Lowness  of  charges  is 
outweighed  by  the  instability  of  charges.  And  the  reduction 
itself  is  necessarily  of  an  ephemeral  character.  Continuance  of 
the  rates  means  universal  bankruptcy ;  escape  from  ruin  is  pos- 
sible only  through  combination.  The  combination  which  results 
again  raises  rates,  and  the  charges  must  now  be  sufficient  to 
earn  profits  on  the  often  increased  capital  of  the  two  lines.  If 
competition  be  beneficial  to  the  public,  it  is  a  very  temporary 
benefit ;  if  railway  wars,  on  the  other  hand,  throw  all  trade  into 
confusion  and  engender  the  most  aggravated  abuses,  then  the 
cessation  of  the  competition  is  a  boon  to  the  public,  even  though 
the  combination  results  in  a  relative  increase  of  charges.  And 
if  this  be  true,  then  a  railway  policy  which  obviates  the  danger 
of  railway  wars  and  "cut-throat"  competition  can  give  the 
public  not  only  stability  of  rates  but  also  the  additional  ad- 
vantage of  relatively  lower  charges. 

However  the  railways  start  out,  they  are  sure  to  end  in  com- 
bination. It  is  the  same  development  as  in  all  other  economic 
monopolies,  with  the  sole  difference  that  the  railway  monopoly 
is  more  pronounced  and  the  railway  combinations  more  wide- 
spread. In  no  business  are  the  effects  of  spasmodic  competi- 
tion more  pernicious.  It  needs  but  slight  acquaintance  with 
the  practical  construction  of  railway  rates  to  perceive  the  abso- 
lute interdependence  of  tariffs.  A  war  between  two  important 
lines  necessarily  involves  the  interests  of  distant  roads  through- 
out the  country.  The  only  escape  from  ruin  is  the  replacement 
of  competition  by  some  form  of  combination.  No  less  than 
seven  possible  forms  of  arrangement  have  been  successively 
tried :  i.  Agreement  to  make  equal  rates  or  give  equal  facilities 
as  to  speed,  accommodation,  etc.  2.  Agreement  to  forward  traffic 
over  each  other's  lines  by  working  arrangements  or  traffic  facili- 


50  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

ties.  3.  Agreement  to  divide  the  field.  4.  Agreement  to  divide 
the  earnings.  5.  Agreement  to  divide  the  traffic.  6.  Agree- 
ment to  lease.  7.  Agreement  to  consolidate.  Each  successive 
arrangement  presents  more  chances  of  stability  and  permanence 
than  its  predecessor. 

The  first  two  methods  have  their  home  principally  in  England, 
although  they  are  characteristic  of  all  early  attempts  to  avert 
competition.  Not  only  do  the  railways  agree  as  to  the  charges, 
but  also  as  to  the  speed  and  accommodations.  Contracts  to  run 
an  equal  number  of  trains  at  the  same  speed  and  with  similar 
facilities  are  extremely  common.  For  a  long  time  reliance  was 
placed  on  the  existence  of  competition,  but  at  present  both  rail- 
way officials  and  railway  antagonists  have  definitely  abandoned 
all  faith  in  its  efficacy.1  Agreements  as  to  rates,  speed,  and 
accommodation  are  to-day  the  well-nigh  universal  rule. 

It  is  plain,  however,  that  new  agreements  to  maintain  rates 
or  afford  facilities  are  difficult  to  enforce  in  the  face  of  serious 
temptation  to  cut  rates  or  underbid  a  rival  company.  The 
difficulty  grows  in  proportion  to  the  number  of  originally  com- 
petitive lines.  Hence  in  the  United  States,  where  the  facility 
of  constructing  new  competitive  roads  is  practically  unlimited, 
these  methods,  although  often  tried,2  have  proved  ineffectual  to 
prevent  railway  wars  with  the  consequent  abuses  of  fluctuations 
and  injustice  to  the  public.  It  was  necessary  to  devise  some 
other  escape  from  competition. 

The  third  method,  that  of  division  of  the  field,  was  naturally 
impracticable  as  long  as  any  such  plan  might  immediately  be 
frustrated  by  the  construction  of  a  new  line  to  invade  the  field. 
Some  countries  indeed,  which  foresaw  the  weakness  of  compe- 
tition from  the  very  outset,  adopted  this  method,  technically 

1  Report  Select  Committee  on  Railways  (1882),  Evid.  qu.  2964  (Brown)  :  "The 
days  of  competition  are  gone  with  railway  companies."     Ibid.,  qu.  3896:  "It  can- 
not be  to  the  interest  of  [the  railways  or]   the  public  to  carry  on  such  competitive 
traffic,  as  they  must  either  agree  or  stop  ultimately."     Cf.  as  to  non-competition  in 
accomodations,  etc.,  Joint  Select  Committee  of  1872,  Evid.  (Farrer)  qu.  7623,  (Tyler) 
qu.  6893,  6914,   (Wright)  qu.  2548,   (Scott)  qu.  5384,  etc. 

2  The  arrangement  made  by  the  Saratoga  conference  of  1 874  is  the  first  example 
of  such  an  agreement  between  the  trunk  lines.     As  to  Western  agreements  between 
"  honorable  "  roads  at  present,  cf.  Cullom  Committee  Rep.,  Test.,  p.  728. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  51 

called  the  principle  of  territorialization.  Thus  France  parcelled 
out  her  territory  among  a  small  number  of  railways,  principally 
radiating  from  Paris  as  a  centre.  The  six  "great  companies" 
which  control  the  transportation  facilities  are  the  direct  product 
of  the  governmental  policy.  To  use  Mr.  Chadwick's  phrase,  it 
is  a  system  of  competition  for  the  field,  not  of  competition  in 
the  field,1  i.e.  the  stage  of  competition  is  removed  to  the  period 
anterior  to  construction.  In  other  words,  the  charters  were 
granted  to  the  highest  bidders,  to  those  companies  which  agreed 
to  the  conditions  most  favorable  for  the  state.  But  this  system 
proved  defective  in  a  double  manner.  In  the  first  place,  the 
rivalry  between  the  corporations  to  obtain  the  coveted  charters 
resulted  in  the  assumption,  by  the  successful  competitors,  of 
such  unduly  heavy  burdens  that  after  a  short  time  they  were 
confronted  by  the  prospect  of  speedy  ruin,  until  the  state  was 
compelled  to  interfere  and  lighten  the  burdens,  thus  abandon- 
ing the  advantages  that  had  been  secured.  In  the  second  place, 
the  almost  absolute  immunity  from  competition  by  new  lines 
rendered  the  railways  careless  and  averse  to  undertake  improve- 
ments. While  the  French  system,  therefore,  avoided  in  great 
measure  railway  wars  and  personal  discriminations,  it  gave  rise 
to  serious  complaints  of  extortionate  charges  and  insufficient 
facilities — complaints  which  the  recent  agreements  between  the 
railways  and  the  state  are  attempting  to  remedy.2 

In  those  countries,  however,  where  the  original  policy  was 
that  of  unrestricted  competition,  the  trend  toward  combination 
has  also  taken  this  form  of  territorialization.  In  England  it  is 
known  as  the  districting  system  or  district  amalgamation,  the 
chief  examples  being  those  of  the  North  Eastern  and  Great 
Eastern  railway  companies.3  The  project  has  often  been 
broached  of  enforcing  a  more  systematic  districting  in  the 
future;  but  the  select  committee  of  1872  showed  that  such 

1  Chadwick,  Results  of  different  Principles  of  Legislation  and  Administration  in 
Europe,  Journal  of  the  Statistical  Society,  vol.  22  (1859),  pp.  381-420,  esp.  p.  385. 

2  Thoviste,  Etude  sur  les  conventions  financieres  conclues  entre  1'Etat  et  les  com- 
pagnies  de  chemins  de  fer  (1886),  pp.  121-124,  164-170. 

3  Joint  Select  Committee  of  1872  on  Railway  Companies'  Amalgamation,  Evid.  qu. 
3660  et  seq. 


52  POLITICAL  SCIENCE  QUARTERLY.  [ VOL.  II. 

a  plan  was  still  impracticable,  and  enlarged  on  the  inexpediency 
of  conceding  a  full  legal  monopoly  to  the  "  districted  "  combina- 
tions.1 In  the  United  States  there  have  been  sporadic  ex- 
amples of  the  division  of  the  field,  where  the  separate  parties 
to  the  combination  agreed  not  to  trench  upon  each  other's  terri- 
tory ;  but  the  immense  number  of  competitive  lines  has  ren- 
dered arrangements  of  this  kind  for  the  most  part  illusory. 

The  next  and  most  common  step  in  the  development  of  com- 
bination is  the  growth  of  the  fourth  and  fifth  forms  —  division 
of  the  traffic  or  the  earnings.  These  are  technically  known  as 
pools,  —  traffic  pools  and  money  pools,2 — and  it  is  against  them 
that  the  fulminations  of  the  Interstate  Commerce  law  are  di- 
rected. There  is,  perhaps,  no  single  institution  more  commonly 
or  more  grievously  misunderstood.  For  the  odium  that  it  has 
incurred  the  name  itself  is  in  part  responsible.  "  Pooling" 
savors  of  a  gambling  transaction,  of  a  wager  or  speculation ;  it 
immediately  recalls  to  mind  the  "  blind  pools  "  of  Wall  Street 
notoriety,  the  accompaniments  of  games  of  chance.  But  rail- 
way pools  are  of  an  entirely  different  nature.3  They  are  simply 
an  attempt  to  escape  the  evils  of  an  unrestricted  competition 
while  retaining  all  its  essential  advantages. 

The  first  great  benefit  of  all  pooling  machinery  is  a  greater 
stability  of  charges.  Continual  and  sudden  fluctuations  in 
rates  are  regarded  by  shippers  as  even  worse  than  extortion- 
ate rates.  Momentary  and  unexpected  changes  throw  all  busi- 
ness into  confusion.  Yet  before  the  formation  of  pools  these 
fluctuations  were  enormous.  Let  us  take  as  an  example  the 
traffic  between  Chicago  and  New  York,  which  received  an  im- 
mense impetus  several  years  after  the  close  of  the  war  and 
the  formation  of  the  trunk  lines.  In  1869  the  through  tariffs 
from  New  York  to  Chicago  changed  twenty  times  during  the 
year;  in  1870,  eleven  times;  in  1871,  nine  times;  in  1875,  five 

1  Report,  pp.  xl-xlii.     Cf.  Evid.  (Farrer)  qu.  7679,  (Price)  qu.  3815,  etc. 

2  Or  "  cash  "  pools. 

3  Cf.  in  general,  Cooley,  Popular  and  Legal  Aspects  of  Traffic-pooling  (1884); 
Simon  Sterne,  Railroad  Poolings  and  Discriminations   (1879);    Blanchard,  Traffic 
Unity  (1884);   Pierson,  The  Passenger  Pool  (1884);   Fink,  The  Railroad  Problem 
and  its  Solution  (1880). 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  53 

times.1  Not  a  year  passed  without  frequent  and  often  enormous 
fluctuations;  e. g.t  sudden  changes  from  $1.88  to  40  cents  per 
hundred  and  then  back  again.  Yet  after  the  formation  of  the 
trunk  line  pools  of  1877-8,  which  were  subsequently  strength- 
ened by  the  joint  executive  committee  of  1879,  there  were  for 
more  than  three  and  a  half  years  no  changes  at  all.2  The  mani- 
fest gain  to  the  public  in  this  increased  steadiness  of  rates  needs 
no  further  elucidation.  Without  the  machinery  devised  for  the 
Southern  Railway  and  Steamship  association  in  1875  by  Mr. 
Albert  Fink,  and  extended  by  him  to  the  trunk  lines  in  1877, 
this  stability  of  rates  would  have  been  infinitely  more  difficult  , 
of  accomplishment. 

Secondly,  not  only  do  the  pools  succeed  in  obtaining  a  greater 
stability  of  the  published  tariffs,  but  they  also  tend  to  maintain 
actual  charges  to  the  level  of  the  published  tariffs  by  abating 
"  rate-cutting,"  whether  secret  or  open.  It  is  conceded  that  per- 
sonal discriminations  or  preferential  rates  form  the  chief  abuse 
of  our  railway  management.  These  special  favors  may  indeed  be 
cloaked  under  a  variety  of  disguises,  —  such  as  underweighing 
or  underbilling,  Christmas  gifts,  and  other  arrangements  whose 
exact  tenor  is  known  only  to  the  freight  manager  and  the 
individual  shipper,  —  for  the  forms  of  personal  preferences  are 
limited  only  by  the  ingenuity  of  the  railway  officials.  But 
secret  rebates  of  this  kind  cannot  be  entirely  prevented  by  any 
method,  whether  legal  prohibition  or  voluntary  agreement,  as 
long  as  they  remain  secret.  The  sole  remedy  lies  in  absolute 
publicity  and  in  removing  as  much  as  possible  the  temptation 
to  cut  rates.  This  the  pooling  system  accomplishes  with  a  fair 
degree  of  success,  since  the  earnings  of  the  railways  are  divided 
in  fixed  proportions  irrespective  of  the  traffic  actually  carried. 
The  more  effectual  the  pool  and  the  more  stringent  the  penalties 


1  Fink,  Statistics  regarding  the  Movement  of  Eastbound  and  Westbound  Traffic 
over  the  Trunk  Lines  and  connecting  roads  (1884),  p.  39,  comprising  all  changes  from 
1862  to  1884. 

2  From  Feb.  15,  1878,  to  Aug.  6,  1881.     Hudson,  The  Railways  and  the  Public,  p. 
218,  does  not  allude  to  these  facts.     His  exposition  is  worse  than  inaccurate.     It  is 
so  misleading  as  to  be  positively  mischievous. 


54  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

for  infraction   of   the   agreement,  the  greater  the  chances  for 
maintenance  of  rates. 

To  object  to  pools  because  they  have  not  completely  attained 
their  object  —  that  of  maintaining  rates  —  is  an  argument  of 
but  little  cogency.  The  most  candid  observers,  even  among 
those  who  at  the  outset  opposed  all  forms  of  monopoly,  admit 
that  the  situation  has  been  materially  improved  since  the  exist- 
ence of  railway  pools.1  Such  gross  and  palpable  discriminations 
as  those  which  built  up  the  Standard  Oil  company  would  have 
been  impossible  under  the  late  system  of  complete  trunk  line 
pools.2  Preferential  rates  to-day  in  the  district  covered  by  the 
pooling  systems  are  immeasurably  less,  both  in  number  and 
extent,  than  ten  years  ago.  The  pressure  exerted  upon  recalci- 
trant members  is  always  stronger  in  a  pool  than  in  a  mere  agree- 
ment to  maintain  rates.  If  pools  have  not  been  entirely 
successful  in  preventing  discriminations  and  railway  wars,  it  is 
owing  solely  to  lack  of  sufficiently  coercive  powers  in  the  execu- 
tive as  well  as  to  the  fact  that  the  pools  are  to  a  great  extent 
beyond  the  law.  The  non-maintenance  of  rates  is  a  violation  of 
the  pool,  not  a  result  of  the  pool.  But  if  it  be  granted  that 
pools  do  exert  a  beneficial  influence  in  preventing  preferential 
rates,  then  the  surest  method  of  augmenting  this  influence  lies 
in  strengthening  the  pools  with  their  compulsory  powers,  not  in 
abrogating  them.  The  railway  officials  themselves  have  finally 
become  conscious  of  this  truth,  and  during  the  past  few  years 
we  have  had  the  singular  spectacle  of  railway  magnates  demand- 
ing governmental  interference  with  the  railways  in  order  to 
legalize,  enforce,  and  regulate  the  pooling  contracts.  That  such 
a  step  would  be  advantageous  to  the  corporations  is  now  sub- 
stantially admitted  ;  that  it  would  be  no  less  advantageous  to 
the  public  is  a  fact  which  is  only  beginning  to  dawn  on  the 
public  mind.3 

1  Cf.  Simon  Sterne,  The  Railway  Question  (1885),  pp.  22-27,  and  m  Cullom  Re- 
port Test.,  pp.  71-77,  as  compared  with  his  views  in  Report  on  the  Internal  Com- 
merce of  the  United  States  (1879). 

2  United  States  Senate  Committee  on  Labor  and  Education  (1883),  Test,  vol.  ii, 

P-  5*7- 

8  A  fact  obscured  by  such  thoroughly  partisan  and  unscientific  works  as  that  of 

Mr.  Hudson. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  55 

The  early  pools  were  mainly  "money  pools."  Thus  the 
Chicago  and  Omaha  pool  of  1870  was  based  simply  on  the 
principle  of  a  division  of  the  total  earnings  after  the  deduction 
of  a  fixed  percentage  retained  by  each  of  the  three  roads  as 
representing  its  expenses.  But  this  arrangement  was  a  manifest 
temptation  to  the  individual  lines  to  cut  rates,  increase  the  com- 
petitive business,  and  thus  deduct  a  larger  share  to  cover  the 
increased  expenses.  Hence  in  1874  the  arrangement  was 
modified  so  as  to  no  longer  allow  deductions  for  expenses.  The 
combination  thus  became,  with  a  few  minor  exceptions,  a  "gross 
money"  pool  instead  of  a  "net  money"  pool.1  In  the  Southern 
Railway  and  Steamship  association  of  1875  the  pooling  policy 
was  only  one  of  the  features  of  the  combination,  it  being  in 
other  respects  a  forerunner  of  the  "  traffic  associations,"  whose 
object  is  to  facilitate  the  transaction  of  business,  to  provide 
proper  means  of  amicably  adjusting  all  differences,  and  to  col- 
lectively and  promptly  enforce  all  agreements.  Pools  and  traffic 
associations  are  of  course  entirely  independent  of  each  other ; 
a  pooling  arrangement  may  be,  and  frequently  is,  one  of  the 
features  of  the  traffic  association,  but  there  is  no  necessary  con- 
nection between  them.  The  one  may  and  does  exist  without  the 
other.  In  the  association  devised  by  Mr.  Fink,  with  its  elaborate 
machinery  of  executive  officers,  general  commissioner,  board  of 
arbitration,  etc.,  the  word  pool  is  not  mentioned  at  all.  It  was 
simply  an  attempt  to  substitute  organized  and  harmonious  action 
for  the  chaotic  confusion  and  internecine  rivalry  between  the 
southern  railways.2  Pooling  arrangements  were  subsequently 
adopted,  but  only  as  a  subordinate  and  entirely  incidental  feature 
of  the  general  project.  The  contract  provided  for  a  net  money 
pool,  but  with  a  comparatively  small  deduction  for  expenses.3 
The  supplementary  agreement  of  1877  sought  to  increase  the 
cohesiveness  of  the  pool  by  providing  for  a  penalty  fund4 

1  Report  on  the  Internal  Commerce  of  the  United  States  (1879). 

2  Proceedings  of  the  Convention  of  the  Southern  Railway  and  Steamship  Assoc. 
at  Atlanta,  Ga.,  Sept.  16,  17,  1875,  PP-  11-17  (letter  of  Fink),  1-9  (agreement). 

8  Report  on  Internal  Commerce  of  the  United  States  (1876).  Part  II  contains  a 
reprint  of  the  agreements. 

4  20  per  cent  of  the  amount  received  on  all  joint  business  transacted. 


56  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

deposited  by  each  road  with  the  commissioner  as  a  pledge  of 
good  faith,  and  forfeitable  upon  proven  infraction  of  the  agree- 
ment. 

When  the  Westbound  Trunk  Line  pool  was  formed  by  Mr. 
Fink  in  1877  after  a  protracted  and  desperate  war.  the  policy 
of  dividing  the  business  instead  of  the  earnings  was  carried 
into  effect.  It  was  a  "  traffic  pool "  instead  of  a  money  pool, 
and  was  further  developed  in  the  joint  executive  agreement 
of  1879.  The  joint  agent  was  invested  with  the  duty  of 
making  the  weekly  accounts  and  of  specifying  the  roads  which 
had  carried  less  than  their  agreed  percentage  ;  and  such  roads 
were  bound  to  promptly  restore  the  balance  by  removing  from  the 
other  companies  their  excess.1  This  was  known  as  the  "  equal- 
izing of  freight"  or  "diversion  of  traffic."  In  the  new  agree- 
ment of  1882  the  payment  of  money  balances  or  settlements 
in  net  earnings  was  introduced,  and  for  two  years  no  transfers 
of  tonnage  were  made.2  But  to  some  extent  the  practice  re-ap- 
peared, and  caused  so  much  dissatisfaction  among  the  shippers 
that  in  the  agreement  of  1885  it  was  definitely  discarded  and  pro- 
vision made  for  the  prompt  payment  of  money  balances  by 
preliminary  deposits  to  the  credit  of  certain  trustees.3  Since 
October,  1884,  settlements  moreover  were  made  in  gross,  not 
net  earnings.  In  the  division  of  the  eastbound  dead  freight 
and  live  stock  traffic,  as  well  as  among  the  other  associations 
throughout  the  country,  this  method  of  settlement  had  be- 
come the  general  rule.  So  accurately  were  the  percentages 
allotted,  that  the  amount  of  money  balances  was  phenom- 
enally small,  in  some  cases  amounting  to  less  than  one  per 
mill  of  the  gross  revenue.4  This  is  a  fact  commonly  over- 
looked, but  which  reflects  the  greatest  possible  credit  on  the 
organizers  of  the  traffic  arrangements. 

1  Cf.  the  contract  in  Hepburn  Committee  Report,  Exhibits,  p.  63. 

2  Cf.  statistics  in  Fink,  Letter  in  relation  to  the  Diversion  of  P'reight,  Exhibit  No.  3, 
Third  Report  of  Board  of  Railroad  Commissioners  of  New  York  (1885),  p.  120. 

8  Contract  between  the  trunk  lines,  Nov.  6,  1885,  arts,  x-xiii ;  reprinted  in  Cullom 
Com.  Rep.,  App.,  pp.  237-244. 

4  In  the  Southern  Railway  and  Steamship  Association  from  1876  to  1886,  gross 
earnings  were  $82,000,000  j  total  money  balances,  $461,295,  or  0.56  per  cent.  The 


No.  3.] 


THE  INTERSTATE  COMMERCE  LAW. 


57 


The  idea  that  pools  are  a  product  of  American  ingenuity  is 
most  erroneous.  The  present  form  of  railway  federation  or 
traffic  association  is  indeed  peculiar  to  America,  and  repre- 
sents the  life-long  work  of  Albert  Fink,  but  the  pooling 
arrangements  are  only  ancillary  features.  Pools  are  not  new. 
Europe  learned  the  futility  and  inexpediency  of  opposing  pools 
many  years  ago.  They  have  been  found  to  be  the  surest 
means  of  preventing  unjust  discriminations.  In  England  they 
are  known  as  "joint  purse"  arrangements,  and  generally  take 
the  form  of  money  pools  because  of  the  greater  consolidation 
of  the  lines.  Agreements  to  charge  equal  rates  for  competitive 
traffic  have  been  much  more  uniformly  observed  in  Great 
Britain  than  with  us,  and  hence  the  more  advanced  arrange- 
ments for  the  division  of  traffic  have  not  been  so  necessary. 


following  interesting  figures  relative  to  the  trunk  lines  have  never  been  published, 
but  rest  on  official  authority,  and  have  been  inspected  by  me.  The  details  for  each 
road  are  for  obvious  reasons  omitted. 


TONNAGE 
CARRIED. 

GROSS 
REVENUE. 

REVENUE 
BALANCES. 

PER   CENT. 

Westbound,  1877  to  l886   •  • 

8,984,294 

$36,356,163 

#482,537 

1.32 

Eastbound,  1882  to  1885  ... 

30,423,749 

65,133,997 

272,015 

0.41 

Boston  and  New   England, 

Live  Stock,  1882  to  1886  . 

1,347,407 

3,377487 

23,072 

0.68 

All  divisions,  1877  to  1886  . 

49,792,626 

129,530,377 

1,200,729 

0.9 

I  add  a  few  examples,  without  mentioning  the  exact  date  or  species  of  traffic : 


RAILROAD. 

TOTAL  RECEIPTS. 

BALANCES. 

PER  CENT. 

Baltimore  and  Ohio    

$QI  133 

&IOC  rec'd 

O    I 

New  York  Central  and  Hudson  River  .  .  . 

3,861,364 

1  8  ~\  co  020 

612  paid 
47  6c.7  r>aid 

0.016 
0.21; 

The  balances  paid  by  the  different  companies  which  carried  in  excess  of  their 
allotments  were  on  the  total  traffic  : 


New  York  Central 
Pennsylvania 
Grand  Trunk 
Lackawanna 


of  I  cent  per  100  pounds. 


58  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

But  joint  purse  agreements  are  not  at  all  uncommon.1  Many 
of  them  have  been  made  under  the  express  sanction  of  Parlia- 
ment or  the  commission  to  which  the  power  of  approval  has 
been  delegated.  The  apportionments  of  traffic  are  moreover 
made  for  much  longer  periods  than  in  the  United  States,  —  a 
fact  ascribable  to  the  comparative  constancy  of  business  and 
the  settled  character  of.  commercial  relations.  Thus  Glad- 
stone allotted  pooling  percentages  for  a  term  of  five  years  in 
1851  and  made  a  further  award  for  fourteen  years  in  1857.2 
In  1853  the  manager  of  a  single  railway  called  attention  to 
twenty-seven  such  pooling  arrangements  made  by  his  own  line 
within  a  very  limited  period,  dividing  the  traffic  in  all  salient 
points.  The  railways  among  themselves  and  the  railways 
and  canals  are  shown  to  form  a  "happy  family."3  It  is  simply 
an  additional  proof  of  Gladstone's  statement  that  competition 
between  railways  is  like  a  lovers'  quarrel  :  breves  inimicitiae, 
amicitiae  scmpiternae^  The  joint  fund  arrangements  are  found 
in  large  numbers  to-day,  and  the  clearing  house  acts  as  the 
agent  of  the  interested  parties,  in  this  respect  very  much  like  the 
general  commissioners  of  our  traffic  associations.5  In  England, 
while  Parliament  may  still  disclose  a  certain  jealousy  of  the 
working  arrangements  of  this  kind,  it  does  not  think  of  pro- 

1  As   an   example  at  present  cf,  the  lines  at  Preston,  Select  Com.  (1881),   qu. 
12,050. 

2  The  first  pool  was  between  the  Great  Northern,  the  London  and  North  West- 
ern, and  the  Midland  railways  ;    the  second  between  the  same  and  the  Manchester, 
Sheffield   and   Lincolnshire.     Parliament   has  sanctioned  pools  between  the  South 
Eastern  and  the  London,  Chatham   and   Dover   railways  ;    and   also    between   the 
London,  Brighton  and  South  Coast  and  the  South  Eastern  companies. 

8  Rep.  Sel.  Com.  on  Railway  and  Canal  Bills  (1853),  Evid.  (Huish)  qu.  120-310. 

4  Speech  on  bill  of  1844  (Hansard,  vol.  76,  pp  480-509).     Gladstone  adds:   "  I 
would  no  more  trust  the  railway  proprietors  on  railway  matters  than  I  would  Grac- 
chus speaking  of  sedition.     I  know  of  nothing  more  chilling  than  the  hope  which 
railway  directors  hold  out  from  competition."     The  whole  speech  may  be  found  in 
full  in  Gait,  Railway  Reform,  its  importance  and  practicability  considered  (1864),  App 
254-266.     Gait's  book  itself  is  a  highly  fanciful  plea  for  uniform  cheap  charges,  based 
on  Rowland  Hill's   postal   reform.     The   first   edition  was   published  in  1843,  and 
demands  state  purchase. 

5  Rep.  Joint   Select   Committee  on   Railway  Companies'  Amalgamation   (1872). 
Evid.  (Dawson)  qu.  5571-2.    The  clearing  house  does  not  fix  the  percentages  as  did 
our  pool  commissioners. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  59 

hibiting  them  ;  it  simply  makes  them  subject  to  governmen- 
tal regulation.  The  wisest  thinkers,  even  among  those  who 
cannot  be  deemed  by  any  means  apologists  of  the  railways, 
confess  that  some  of  the  present  abuses  may  be  obviated  by 
a  more  intimate  fusion  of  interests  in  this  direction.1 

On  the  continent  pooling  arrangements  are  carried  out 
to  a  much  greater  extent,  and  personal  discriminations  are 
hence  correspondingly  less  frequent.  In  Germany  they  are 
known  as  Kartellen  or  Instradirungs-v  enrage?  Owing  to  the 
greater  complexity  of  the  lines  and  the  lesser  degree  of  con- 
solidation, they  generally  take  the  form  of  traffic  pools.  One 
important  example  of  a  money  pool  was  the  great  German 
Austrian  union  (Deutsch-oesterreichischer  Verband},  an  interna- 
tional association  from  1868  to  1873.  But  this  was  finally 
abandoned  on  account  of  the  difficulty  of  making  the  exact  allot- 
ments, it  being  not  a  gross  money  pool  as  in  England  or  with 
us,  but  a  net  money  pool  with  deduction  for  expenses.3  Since 
the  railways  have  been  almost  entirely  purchased  by  the  state 
in  Prussia,  the  necessity  for  pools  has  diminished,  but  the 
rivalry  between  the  various  state  systems  is  so  intense  that 
a  series  of  interstate  pools  has  sprung  up.  In  order  to  facili- 
tate the  execution  of  these  agreements  it  has  even  been  pro- 
vided that  the  shipper  shall  no  longer  have  the  right  to  select 
the  route  by  which  his  goods  are  to  be  transported.*  The 
railways  ship  the  goods  as  they  please,  the  sole  condition 
being  that  the  freight  is  to  be  carried  by  the  cheapest  or 
otherwise  most  favorable  line.  Not  only  are  the  pools  effectu- 
ally enforced  between  the  state  railways  themselves  but  also, 

1  Sir  B.  Samuelson,  Report  on  Railway  Goods  Tariffs  (1886),  p.  22.    That  the 
railway  men  favor  this  plan  is  of  course  obvious;  cf.  Grierson,  Railway  Rates  (1886), 
sec.  xvi. 

2  Or  Instradirungs-vereinbarungen. 

8  Reitzenstein,  Ueber  einige  Verwaltungseinrichtungen  und  das  Tarifwesen  auf 
den  Eisenbahnen  Englands,  pp.  152  et  seq.  This  contains  a  comparison  of  the 
English  and  German  pools.  For  other  cases,  see  Ulrich,  Das  Eisenbahntarifwe- 
sen,  §  63. 

4  The  sole  exception  is  in  case  of  goods  subject  to  customs  duties;  Beschluss  des 
Bundesraths,  March  12,  1885,  which  changes  §  50  of  the  Betriebsreglement.  Cf. 
also  Endemann,  Das  Recht  der  Eisenbahnen  (1886),  FUnfter  Abschnitt. 


60  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

when  there  is  any  danger  of  serious  competition,  between  the 
railways  and  the  waterways,  including  both  canal  and  river  traf- 
fic. In  the  allotment  of  percentage,  moreover,  the  shortest  line 
is  not  taken  as  the  basis,  but  the  shorter  road  is  deemed  equal 
to  the  longer  road  only  up  to  twenty  per  cent  of  the  longer  dis- 
tance.1 The  pooling  arrangements  in  Germany  have  been  of 
signal  service  in  simplifying  and  equalizing  the  charges,  which 
prior  to  their  introduction  were  of  the  most  complicated  and 
often  outrageously  unjust  character;  and  to-day  they  still  per- 
form the  most  valuable  services  in  international  traffic.  No 
one  any  longer  thinks  of  opposing  them  in  principle.2 

In  Austria,  where  the  state  and  private  railways  exist  side  by 
side,  money  and  traffic  pools  are  of  daily  occurrence.  No 
sooner  is  a  new  route  opened  than  it  receives  its  share  of  the 
competitive  traffic,  and  is  thus  deprived  of  any  pretext  to  under- 
take a  railway  war.  It  may  be  declared  that  all  competitive 
traffic  in  Austria  is  strictly  pooled.3  The  state  railways  them- 
selves divide  earnings  or  traffic  with  the  water  routes,  and 
are  thus  able  to  avoid  crying  discriminations.  In  Belgium, 
where  one  large  private  company,  the  Grand  Central  Beige, 
has  been  the  most  formidable  potential  competitor  of  the  state 
railways,  the  government  has  concluded  a  pooling  agreement 
for  the  strict  division  of  all  competitive  traffic.  The  line  over 
which  the  shipment  is  made  receives  all  the  frais  fixes,  or 
terminal  charges,  as  well  as  one-half  of  the  frais  variables,  or 
movement  charges.  The  remainder  is  pooled  in  fixed  per- 
centages.4 The  sad  experience  of  railway  wars  and  exorbitant 

1  This  is  known  as  the  doctrine  of  "virtual  "  or  "  computed"  distances.     Schrei- 
ber,  Das  Tarifwesen  der  Eisenbahnen,  S.  245-249.     It  is  somewhat  similar  to  our 
"  constructive  mileage." 

2  Cf.   von  der  Leyen,  Die    nordamerikanischen    Eisenbahnen    (1885),  S.   296  : 
"The  European  expert  finds  these  arrangements  entirely  unobjectionable"  ("findet 
in  solchen  Verbanden  nichts  Verwerfliches  ").     Cf.  also  Obermayer,  Ueber  Tarifver- 
ba'nde  und  Eisenbahnkartelle  (1879). 

3  Sax,  Die  Verkehrsmittel,  Bd.  II,  S.  102.      For  full  details  as  to  a  late  instance 
(the  Arlberg  line),  see  The  Railroad  Gazette,  1884,  p.  636. 

4  According  to  the  doctrine  of  "  virfual  distances."     But  if  the  longer  line's  mile- 
age exceeds  the  other  by  more  than  25  per  cent,  it  receives  nothing  beyond  the 
terminals  and  one-half  of  the  movement  charges. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  6 1 

discriminations  in  the  past  has  long  since  convinced  the  gov- 
ernment of  the  absolute  necessity  of  some  agreements  with  its 
private  competitors.  Just  as  competition  in  general  pulls  the 
best  men  down  to  the  level  of  the  most  unscrupulous,  so  in  the 
competition  between  the  state  and  the  private  railways  the 
government  itself  was  compelled  to  descend  to  the  methods 
of  private  companies  and  practise  discriminations  of  the  most 
flagrant  nature,  in  some  cases  going  so  far  as  to  discriminate 
against  its  own  property  in  the  shape  of  canals.  Until  the 
state  owns  all  the  railways,  such  pools  will  be  necessary  and 
beneficial  to  all  parties  concerned. 

In  France  the  principle  of  territorialization  from  the  very 
outset  has  materially  lessened  the  need  of  pooling  arrange- 
ments. If. the  division  of  the  field  were  absolute,  the  division 
of  traffic  or  earnings  could  not  exist,  for  the  same  result  would 
be  attained  in  either  way.  In  some  few  cases,  however,  the 
chief  lines  partially  overlap  each  other  and  thus  give  rise  to 
competitive  centres,  but  the  dangers  of  competition  are  imme- 
diately obviated  by  the  formation  of  pools,  which  are  recognized 
as  perfectly  legitimate.1  The  state  line  itself  has  made  such 
a  compact  with  the  Orleans  company,  in  which  the  percent- 
ages depend  to  a  certain  extent  on  the  differences  of  grade.2 
France  has  no  faith  in  railway  competition.  In  Italy  the 
railways  are  sharply  divided  into  two  networks,  and  there  is 
no  competition  and  hence  no  necessity  for  pools.  All  inter- 
national traffic,  however,  is  effectively  pooled.  In  Holland, 
where  the  pooling  policy  is  far  less  developed,  the  results  of  the 
competition  between  the  railways,  and  especially  the  railways 
and  waterways,  have  been  so  unsatisfactory  and  the  discrim- 
inations so  crying  that  the  parliamentary  commission  of  1 88 1-2 
desired  to  seek  refuge  from  the  railway  wars  in  universal  con- 
solidation, and  would  have  advocated  state  purchase  had  it  not 

1  A  prominent  French  official  writes  to  me  as  to  the  existence  of  money  pools 
between  railways,  and  even  between  railways  and  canals :    "  II  en  existe  plusieurs 
exemples.     C'est  chose  parfaitement  admise."     So,  e.g.,  the  Chemins  de  fer  d'Ouest 
et  d'Orleans. 

2  Convention  de  1883  avec  la  Compagnie  d'Orleans,  art.  16,  in  Picard,  Chemins  de 
fer  francais,  t.  6  (1885),  p.  396. 


62  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

been  for  financial  difficulties.  Mere  legislative  prohibition  of 
discriminations  they  confessed  to  be  futile,  and  therefore  pro- 
posed to  hasten  on  the  process  of  combination  by  furthering 
the  consolidation  of  certain  smaller  lines,  and  by  refusing 
charters  to  any  new  competing  lines.1 

All  the  European  countries,  therefore,  inculcate  the  same 
lesson.  Unjust  discriminations  and  especially  preferential  rates 
are  found  in  inverse  ratio  to  the  pools.  Where  the  pools  are 
legalized  and  most  effective,  as  in  Germany  and  Belgium,  the 
abuses  are  least ;  where  the  pools  are  less  frequent,  as  in 
England,  the  abuses  are  greater ;  where  the  pools  are  rare  and 
ineffective,  as  in  Holland,  the  abuses  are  scandalous.  Expe- 
rience is  no  less  convincing  than  theory.  As  long  as  there  is 
no  complete  consolidation  we  cannot  prevent  both  pools  and 
discriminations.  We  must  choose  between  them.  The  full 
development  of  the  one  means  the  disappearance  of  the  other. 
With  an  universal  pool,  we  can  stop  all  unjust  discriminations 
produced  by  the  stress  of  competition  ;  with  partial  pools  we 
can  pro  tanto  abate  the  discriminations.  Nothing  will  be 
gained  by  the  attempt  to  stop  pools.  We  may  prohibit  them, 
but  cannot  prevent  them.  And  if  they  could  be  prevented, 
they  would  simply  disappear  for  a  time ;  the  causes  which 
rendered  their  existence  necessary  would  reassert  themselves, 
and  in  the  long  run  prove  invincible,  with  the  only  result  that 
in  the  mean  time  the  country  would  have  been  exposed  to 
an  intensification  of  the  very  evils  which  it  was  desired  to 
suppress. 

That  there  is  a  possible  danger  in  pools  is  indeed  not  to  be 
denied.  The  inference,  however,  is  simply  the  necessity  of 
effective  public  regulation.  What  the  public  fears  is  the 
temptation  to  impose  exorbitant  charges.  The  policy  of 
avoiding  competition  from  the  outset  on  the  continent  of 
Europe  has  certainly  had  some  influence  in  preventing  so 
quick  a  reduction  of  charges  as  with  us.  But  rates  in  this 
country  are  perhaps  as  low  as  can  be  reasonably  desired. 

1  Cf.  the  report  itself  (October,  1882).  For  an  abstract,  see  Archiv  filr  Eisenbahn- 
wesen,  1883,  S.  587-590.  Cf.  Jacqmin,  Chemins  de  fer  des  Pays-bas,  2me  ed.,  p.  87. 


/      /  JD  •  o  - 


No.  3.]  77/£  INTERSTATE  COMMERCE  LAW.  63 

There  is  no  serious  complaint  of  extortion,  and  there  is  far 
less  probability  of  extortionate  charges  here  than  in  European 
countries,  because  of  the  exceptionally  large  amount  of  water 
competition  in  the  United  States.  The  gravamen  of  the  com- 
plaints is  discrimination,  not  extortion.  There  is  no  need  of 
conjuring  up  phantom  dangers.  We  are  actually  confronted  by 
certain  specific  abuses,  and  it  is  a  superficial  policy  to  abolish 
the  means  of  preventing  these  abuses  because  of  the  dim  possi- 
bility of  other  abuses  which  do  not  exist. 

One  misconception  more  fatal  than  any  yet  discussed  still 
remains.  It  is  commonly  supposed  that  pooling  entirely  pre- 
vents competition.  This  is  a  mistake.  Pooling  maintains  the 
advantages  of  a  healthy  competition  and  at  the  same  time 
prevents  the  dangers  of  an  utterly  unrestricted  or  "  cut-throat " 
competition.  The  mere  agreement  to  divide  traffic  or  earnings 
in  certain  percentages  does  not  put  a  stop  to  all  competition. 
Each  of  the  various  roads  will  still  attempt  to  procure  as  much 
business  as  can  possibly  be  obtained  in  a  fair  and  open  manner. 
If  any  line  while  maintaining  the  published  rates  is  yet  enabled 
to  run  above  its  allotted  percentage,  this  surplus  will  justify  the 
railway  in  demanding  an  increased  percentage  in  the  new  allot- 
ment that  is  to  be  made  at  the  expiration  of  the  monthly  or 
yearly  pooling  arrangement.  The  incentive  to  fair  and  healthy 
competition  is  not  removed ;  each  line  will  endeavor  to  vie  with 
its  rival  in  accommodations  and  facilities.  But  the  temptation 
to  take  unfair  advantages  of  its  rivals  is  diminished,  for  an 
increase  of  traffic  due  to  rebates  or  violations  of  the  pooling 
agreement  manifestly  cannot  justify  a  claim  for  increased  per- 
centages. A  successful  pool  prevents  railway  wars  with  the 
accompanying  discriminations,  but  does  not  prevent  healthy 
emulation  to  attract  business.  It  simply  raises  the  plane  of 
competition  to  a  higher  level.1 

The  abolition  of  pooling  would  in  fact  hasten  the  very  result 
which  it  is  desired  to  avoid.  Division  of  the  traffic  and  the 
earnings  form,  as  we  have  seen,  the  fourth  and  fifth  step  in  the 

1  This  is  another  of  the  points  entirely  overlooked  by  Hudson,  The  Railways  and 
the  Republic,  p.  229. 


64  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

progress  of  combination.  The  final  steps  are  lease  and  absolute 
consolidation.  The  tendency  to  combination  is  irresistible  ;  all 
endeavors  to  stem  the  current  have  been  and  will  be  futile.1 
If  therefore  pools,  which  still  permit  competition  to  a  limited 
degree,  be  abolished,  the  process  of  complete  consolidation, 
which  utterly  precludes  competition,  will  be  accelerated.  Un- 
der the  system  of  division  of  earnings,  the  weaker  roads  are 
still  enabled  to  procure  a  share  of  the  business  and  thus  main- 
tain a  limited  competition ;  remove  the  guarantee  of  allotted 
percentages,  and  it  is  simply  a  question  of  time  before  the 
weaker  roads  are  driven  to  the  wall  and  then  bought  out  by 
their  more  sturdy  competitors.  No  clause  in  the  Interstate 
Commerce  act  prohibits  the  stronger  line  from  lowering  its 
charges  and  thus  inaugurating  a  war  of  rates,  provided  it  be 
done  publicly.  The  enforced  publicity  of  charges  is  undoubtedly 
an  immense  step  in  advance ;  but  while  no  increase  of  charges 
can  be  made  until  after  ten  days'  public  notice,  reductions  in  the 
charges  may  take  place  without  previous  public  notice.2  Railway 
wars  are  hence  by  no  means  prevented.  Pools  are  indeed  a  make- 
shift, but  the  disappearance  of  this  modified  and  partial  form  of 
combination  would  most  assuredly  lead  to  a  more  complete  and 
absolute  form  of  combination.  The  logical  outcome  will  be  a 
concentration  of  the  railways  in  the  hands  of  an  exceedingly 
small  number  of  corporations,  and  the  development  may  even 
be  carried  to  a  stage  which  the  telegraph  lines  have  already 
reached  —  a  practical  monopoly  of  one  huge  corporation.  The 
federal  law  is  thus  unwittingly  hastening  the  very  result  which 
it  intended  to  frustrate.  It  defeats  the  very  purpose  which  it 
was  designed  to  accomplish.  Our  legislators  imagined  that 

1  Cf.  English  Select  Committee  (1872),  p.  xxvi:  "While  it  is  extremely  doubtful 
to  what  extent  the  less  complete  forms  of  combination  admit  of  competition,  and 
what  is  the  value  of  such  competition,  there  can  be  little  doubt,  judging  from  the  past, 
that  they  cannot  be  maintained  as  the  ultimate  forms,  and  are  sure,  whatever  princi- 
ples may  be  laid  down  by  committees  or  commissions,  to  end  in  complete  fusion.     So 
much  stronger  is  the  power  of  wealth,  self-interest,  and  united  action  on  the  part  of 
the  companies,  acting  each  in  its  own  case  with  clearness  and  decision,  than  that  of 
any  general  principles  by  which  committees  and  commissions  have  supposed  that  the 
public  interest  might  be  protected." 

2  Sec.  6  of  act. 


v   Vft^   ^  'Vr-£<. 

No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  65 

they  could  prevent  combination  by  prohibiting  pooling ;  in 
reality  they  have  destroyed  that  which  still  preserves  partial 
competition  and  by  prohibiting  pools  have  made  ultimate  con- 
solidation less  remote.  In  their  anxiety  to  prevent  monopoly 
they  have  taken  the  surest  step  to  create  monopoly  ;  in  their 
ignorance  of  economic  laws,  while  hoping  to  raise  an  impassable 
barrier  to  combination  they  have  in  reality  levelled  the  course. 
The  result  will  be  the  exact  opposite  of  their  anticipations. 

The  progress  of  this  consolidation  may  indeed  be  arrested 
for  a  time.  Railway  wars  cannot  of  course  be  the  normal  con- 
dition, and  the  short-haul  clause  of  the  law  will  have  some 
slight  effect  in  preventing  the  inordinately  low  war-rates  to 
centres  of  competition.  It  is  therefore  possible,  nay,  almost 
certain,  that  the  results  of  the  pooling  policy  will  be  attained 
in  another  way  —  through  the  medium  of  "differentials." 
Rather  than  enter  upon  a  war  of  rates,  the  stronger  roads, 
which  through  their  better  facilities  would  tend  to  carry  the 
larger  portion  of  the  traffic,  will  consent  to  give  the  weaker 
lines  a  "differential,"  i.e.,  allow  them  to  charge  so  much  less 
per  ton,  and  to  attract  in  consequence  more  business.  The 
limit  of  the  "  differential  "  l  will  depend  naturally  on  the  desire 
or  ability  of  the  weaker  line  to  declare  war  rather  than  to  accept 
less  than  the  demanded  differential.  This  system,  however,  is 
virtually,  although  not  nominally,  tantamount  to  pooling,  in  so 
far  as  it  is  a  form  of  combination  which  still  retains  a  certain 
amount  of  competition.  But  if  successful,  it  is  open  to  the 
same  objections  as  pooling ;  while  the  absence  of  any  vigorous 
executive  authority  to  enforce  the  agreements  will  be  felt  still 
more  strongly  than  has  hitherto  been  the  case  in  the  traffic 
associations  and  pools.  This  policy  of  what  we  may  call 
"differential  pools  "  cannot  possibly  be  stopped  by  any  law. 

The   anti-pooling    clause2  of   the  federal    law  thus    sins  in 

1  This  technical  phrase  is  used  in  an  entirely  different  manner  from  that  described 
in  my  first  essay,  POLITICAL  SCIENCE  QUARTERLY,  June,  1887,  pp.  236,  237. 

2  Sec.  5  :  "  That  it  shall  be  unlawful  for  any  common  carrier  ...  to  enter  into 
any  contract,  agreement,  or  combination  with  any  other  common  carrier  or  carriers, 
for  the  pooling  of  freights  of  different  and  competing  railroads,  or  to  divide  between 
them  the  aggregate  or  net  proceeds  of  the  earnings  of  such  railroads,  or  any  portions 
thereof." 


66  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

a  double  manner.  It  weakens  the  government  in  its  attempt  to 
prevent  discriminations,  and  it  is  destined  to  produce  a  state  of 
affairs  precisely  the  contrary  of  what  was  intended.  The  first 
three  sections  of  the  act,  which  define  and  forbid  unjust  dis- 
criminations,1 are  in  effect  simply  declarative  of  the  common  law, 
although  based  almost  literally  on  Cardwell's  Traffic  act  of 
1854.  It  may  well  be  doubted  whether  this  mere  legislative 
enunciation  and  prohibition  will  suffice  to  abolish  the  evils  com- 
plained of.  The  definition  is  so  utterly  vague  as  to  be  suscepti- 
ble of  varied  interpretations  ;  and  whatever  interpretation  be 
adopted,  it  must,  as  we  have  shown  in  the  previous  essay,  be  so 
essentially  elastic  as  to  preclude  any  hard  and  fast  application. 
Whether  the  prohibition  of  unjust  discrimination  will  be  any- 
thing more  than  the  expression  of  a  pious  wish,  depends  largely 
on  the  commission  ;  but  the  law  imposes  on  the  commission  an 
unnecessarily  severe  burden,  and  by  prohibiting  pools  removes 
what  would  have  been  a  most  serviceable  crutch  with  which  the 
better  to  support  the  burden.  If  self-help,  or  at  least  private 
co-operation,  be  a  fundamental  feature  of  the  American  polity, 
then  this  law  violates  the  American  idea,  for  it  voluntarily  re- 
signs the  advantages  that  would  accrue  from  the  self-help  of 
the  railways.  I  do  not  object  to  state  interference,  but  I  do 
object  to  the  hasty  abandonment  of  an  institution  which  tends 
to  decrease  the  necessity  of  state  interference.  And  when  the 
abolition  of  the  institution  results,  as  is  assuredly  the  case 
with  pools,  in  hastening  the  advent  of  the  very  monopoly  which 
it  was  designed  to  avoid,  then  the  prohibition  becomes  not  only 
unwise  but  absolutely  absurd.  The  anti-pooling  clause  is  a  sad 

1  Sec.  I  declares  that  "all  charges  .  .  .  shall  be  reasonable  and  just;  and  every 
unjust  and  unreasonable  charge  ...  is  prohibited  and  declared  to  be  unlawful." 
Sec.  2  defines  an  unjust  discrimination  as  the  charging  any  persons  different  amounts 
for  a  "  like  and  contemporaneous  service  in  the  transportation  of  a  like  kind  of  traffic 
under  substantially  similar  circumstances  and  conditions."  Sec.  3  declares  it  unlaw- 
ful "  to  make  or  give  any  undue  or  unreasonable  preference  or  advantage  to  any  par- 
ticular person,  company,  firm,  corporation,  or  locality,  or  any  particular  description  of 
traffic,  in  any  respect  whatsoever,  or  to  subject  any  particular  person,  company,  firm, 
corporation,  or  locality,  or  any  particular  description  of  traffic  to  any  undue  or  unrea- 
sonable prejudice  or  disadvantage  in  any  respect  whatsoever."  These  three  clauses 
are  virtual  repetitions,  and  afford  no  basis  for  a  definite  decision. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  67 

evidence  of  the  results  of  demagogic  ignorance  in  producing 
hasty  and  ill-advised  legislation.  The  Philistines  of  the  daily 
press  exaggerate  the  dangers  of  the  short-haul  section,  because 
these  lie  on  the  surface ;  but  for  the  far  more  important  fifth 
section  of  the  federal  law  they  have  neither  eye  nor  ear.  Fortu- 
nately pooling  will  practically  continue  in  another  form  which 
Congress  will  be  powerless  to  prevent. 

The  Senate  select  committee  of  1886  has  at  least  this  claim 
to  respectful  attention,  that  it  opposed  the  prohibition  of  pools. 
The  abandonment  of  its  position  was  an  inexcusable  concession 
to  popular  clamor.  A  careful  analysis  of  the  testimony  discloses 
the  fact  that  not  only  all  the  railway  officials,  but  also  a  large 
majority  of  the  intelligent  shippers,  had  become  convinced  of 
the  break-down  of  competition  and  the  necessity  of  pooling. 
The  railway  men  opposed  unrestricted  competition  because  it 
curtailed  profits ;  the  intelligent  shippers  opposed  competition 
because  it  produced  discrimination.1  Both  were  correct.  The 
Senate  committee  therefore,  swayed  by  the  unanimous  opinion 
of  the  railway  men  and  the  preponderant  weight  of  testimony 
on  the  part  of  the  public,  decided  that  "  the  evils  to  be  attrib- 
uted to  pooling  are  not  those  which  most  need  correction,"  and 
that  "it  would  seem  wiser  to  permit  such  agreements  rather 
than  by  prohibiting  them  ...  to  endanger  the  success  of  the 
methods  of  regulation  proposed  for  the  prevention  of  unjust 
discrimination."  2  That  the  members  of  the  committee,  with  a 
few  honorable  exceptions,  should  have  seen  fit  to  abdicate  their 
strong  position  is  sincerely  to  be  regretted.  The  clause  as  it 
stands  is  in  defiance  of  the  teachings  of  experience  and  the 
laws  of  political  economy.3 

1  Among  the  shippers  who   uphold  pooling  may  be  mentioned   (yid.  Report, 
Testimony)  Bacon  (707),  Burrows  (1170),  Chapin  (684),  Dunnell  (1330),   Elliott 
(695),  Field  (655),  Francis  (919),  Goodman  (1104),  Cue  (1070),  Herrick  (217), 
Joseph  (1030),  Lowry  (721),  Meek   (1012),    Miller  (269),   Murch    (941),  Noble 
(988),  Phelps  (1410),  Reynolds  (1185),  Root  (1198),  Speare  (347),Tredway  (841), 
Welch  (1445),  Wicke  (766),  and  Williams  (1059).     The  number  of  shippers  who 
oppose  pools  is  far  smaller,  and  of  these  the  great  majority  base  their  opposition  on 
their  belief  in  "  free,  open  competition  in  railways,  as  in  other  things  "  ! 

2  Report,  p.  201. 

8  Even  European  experts  who  are  by  no  means  admirers  of  the  American  rail- 


^ , 


68  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

Free  competition  between  railways,  as  a  regulator  of  trans- 
portation charges,  is  thus  a  mere  chimera.1  But  "competition" 
has  become  such  a  shibboleth  with  a  certain  class  of  reformers 
that  it  may  be  well  to  devote  a  few  words  to  other  forms  which 
are  advocated  as  panaceas  for  existing  abuses. 

Perhaps  the  most  common  recommendation  is  that  of  compe- 
tition of  carriers  on  the  line.  Divorce  entirely  the  business  of 
the  common  carrier  from  that  of  the  highway ;  let  the  corpora- 
tion indeed  own  the  railway,  but  let  every  one  have  the  right 
to  run  his  own  trains  and  use  his  own  locomotives  on  this  rail- 
way. This  indeed  would  be  perfect  competition,  but  of  a  very 
different  kind  from  the  competition  between  the  railways  that 
we  have  been  considering.  Alluring  as  is  this  plan  at  first 
blush,  it  is  open  to  three  vital  objections.  I.  It  is  impracti- 
cable, or,  if  practicable,  would  be  far  more  costly.  2.  It  would 
not  cure  the  great  evils  of  the  present  system.  3.  It  would 
produce  abuses  far  worse  than  any  which  now  exist. 

First,  the  plan  is  impracticable,  or,  if  practicable,  would  be 
far  more  costly.  The  project  is  not  new.  Competition  between 
carriers  was  the  original  theory.  The  early  railway  acts  were 
based  on  the  canal  and  turnpike  acts.  When  the  system  of 
turnpike  trusts  was  inaugurated  in  England  in  I7o6,2  the 
original  public  character  of  the  king's  highway  disappeared, 
and  the  control  fell  into  semi-private  hands.  But  the  highway 
of  course  remained  free  to  all  on  payment  of  the  tolls.  With 
the  advent  of  canals  the  private  speculative  element  was  intro- 
duced into  transportation  ;  for  although  a  very  few  of  the  canals 
were  put  into  the  hands  of  canal  trusts,  the  first  canal 3  and  most 
of  the  others  were  built  by  private  individuals  and  corporations. 
The  early  canal  acts,  however,  invariably  contained  the  clause 

way  system  concur  in  this  opinion.     See  Archiv  fur  Eisenbahnwesen,  1887,  S.  333. 
Cf.  also  Jeans,  Railway  Problems  (1887),  p.  518. 

1  Cf.  Bontoux,  Die  Concurrent  im  Eisenbahnwesen  (1873). 

2  The  old  Watling  road.     The  first  turnpike  act  empowering  the  raising  of  tolls 
Was  passed  1663,  but  the  power  was  given  to  overseers,  not  trusts.     It  is  only  in  the 
last  few  decades  that  the  turnpike  trusts  are  giving  way  to  the  highway  boards  and 
that  the  public  character  is  being  restored. 

8  Duke  of  Bridgewater's  canal  from  Liverpool  to  Manchester.  Acts  of  1758,  1759, 
and  1762. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  69 

that  all  persons  without  distinction  should  have  free  liberty  to 
use  the  canal  on  payment  of  tolls.  When  the  first  tramway  bill 
was  enacted  in  iSoi,1  it  adopted  this  idea,  and  provided,  among 
other  sections  borrowed  verbatim  from  the  canal  acts,  that  all 
persons  should  have  the  right  to  use  the  tramway  with  their 
own  horses  and  wagons.  In  the  charter  of  the  first  railway 
built  with  the  avowed  purpose  of  using  steam  locomotives  a 
similar  clause  was  introduced,  modified  so  as  to  meet  the 
exigencies  of  the  new  methods  of  transportation.2  For  many 
years  the  identical  provision  is  found  in  all  the  railway  acts. 

In  the  United  States  analogous  provisions  were  inserted  in 
the  early  charters.  So,  e.g.,  in  the  charter  of  the  Ithaca  and 
Oswego  railroad.3  In  the  general  railroad  law  of  Prussia  com- 
petition between  the  carriers  is  likewise  legalized,  after  the 
expiration  of  three  years  from  the  opening  of  the  railway.4  In 
France  the  principle  was  carried  so  far  as  actually  to  distinguish 
between  the  charge  for  the  use  of  the  track,  or  the  toll  (droit  de 
peage),  and  the  charge  for  the  transportation  itself  (prix  de 
transport).  To  this  day  even,  the  concessions  of  the  railways 
contain  the  legal  distinction.5  Everywhere,  in  fact,  a  sharp  line 
was  drawn  between  the  two  functions  of  the  railway  company  — 
that  of  providing  the  public  highway  free  to  all  and  that  of 
furnishing  the  means  of  transportation  on  the  highway.  The 
railway  company  was  not  excluded  from  the  latter  function,  but 
it  was  thought  that  its  activity  in  this  direction  would  be  very 
slight. 

The  experience  of  a  very  few  years  totally  destroyed  all  these 

1  The  Surrey  railway  from  Wordsworth  to  Croydon.     Cf.  Francis,  History  of  the 
English  Railway  (1851),  vol.  i. 

2  Liverpool  and  Manchester  Railway  act,  7  Geo.  IV,  cap.  49,  cl.  165:  "All  per- 
sons shall  have  free  liberty  to  use  with  carriages  all  roads,  ways,  and  passages  for  the 
purpose  of  conveying  goods  or  passengers  or  cattle." 

8  Sec.  12:  "All  persons  paying  the  toll  aforesaid  may,  with  suitable  and  proper 
carriages,  use  and  travel  upon  the  said  railroad,  subject  to  such  rules  and  regulations 
as  the  said  corporators  are  authorized  to  make  by  the  ninth  section  of  this  act. 
Laws  of  New  York,  1828,  p.  17.  The  "proper  carriages"  of  course  included  the 
steam-carriages. 

*  Eisenbahngesetz,  1838,  §  27. 

6  Picard,  Chemins  de  fer  fransais,  t.  v,  p.  184  ;  Jacqmin,  De  1'exploitation  des 
chemins  de  fer,  t.  i,  p.  20. 


70  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

anticipations.  As  a  matter  of  fact  the  transportation  was  con- 
ducted solely  by  the  railway  company.  Even  in  those  countries 
which  earnestly  endeavored  to  enforce  the  provisions,  legisla- 
tion was  impotent  to  check  the  natural  tendency.  There  were 
weighty  reasons  which  did  and  always  must  militate  against 
the  success  of  any  such  scheme. 

The  most  obvious  objection,  of  course,  is  the  technical  one. 
The  technical  character  of  the  railway  undertaking  renders  it 
imperative  to  have  unity  of  administration.  If  every  shipper 
could  run  his  own  trains,  it  would  be  almost  impossible  to  pre- 
serve order  or  avoid  serious  accidents.  The  private  trains  would 
have  no  means  of  enjoying  terminal  or  other  conveniences,  and 
if  the  railway  company  were  compelled  to  afford  these  con- 
veniences, it,  would  soon  display  such  power  of  annoying  the 
private  shippers  as  to  render  the  plan  nugatory.  At  a  time 
when  the  engineers  were  grappling  with  the  problem  and  devis- 
ing schemes  for  allowing  two  trains  to  pass  each  other  on  a 
single  track,  the  project  of  competition  between  private  loco- 
motives might  be  plausible ;  to-day  it  is  unintelligible  and 
absurd.  Entirely  apart,  moreover,  from  the  objection  of  tech- 
nical impracticability,  is  the  vital  difficulty  of  increased  expense. 
The  cost  of  service  would  be  so  enormously  increased  as  to 
result  in  higher,  not  in  lower,  charges.  All  shippers  would  not 
be  large  shippers.  The  number  of  those  who  could  despatch  a 
train  with  forty  cars  would  be  exceedingly  limited.  The  result 
would  be  the  necessity  of  ten  engines  for  small  trains  where 
one  now  suffices,  as  well  as  a  vast  increase  in  the  extent  and 
facilities  of  the  terminals  and  a  proportionate  increase  in  oper- 
ating expenses.  The  control  of  transportation  is  indissolubly 
bound  up  with  the  control  of  the  roadbed. 

But  secondly,  the  scheme  would  not  cure  the  great  evils  of 
the  present  system.  What  is  sought  is  the  abolition  of 
unjust  discrimination.  It  is  difficult  to  see  how  free  competi- 
tion of  the  carriers  would  effect  this.  The  railway  would  still 
be  empowered  to  charge  tolls,  but  it  is  impossible,  as  has  been 
shown  in  the  preceding  essay,  that  these  tolls  should  be 
alike  for  all  classes  or  distances.  The  expenses  of  the  pri- 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  71 

vate  trains  would  of  course  be  proportional  to  cost  of  ser- 
vice ;  the  cheap  goods  would  be  more  expensive  to  transport 
than  the  dear  goods.  In  order,  therefore,  to  render  the  trans- 
portation of  cheap  or  distant  articles  at  all  possible,  the  tolls 
would  have  to  vary  in  a  large  degree  in  their  favor.1  According 
to  the  principle  of  value  of  service  it  would  be  requisite  to  have 
classification  and  local  discrimination  in  tolls,  as  in  the  turnpike 
and  canal  tolls,  but  in  a  necessarily  increased  proportion.  The 
private  shippers  of  coal,  e.g.,  would  have  to  defray  not  only  the 
operating  expenses  proper  but  also  the  fixed  charges  represent- 
ing the  capital  invested  in  the  rolling  stock ;  the  railway  com- 
pany, on  the  other  hand,  could  afford  to  transport  this  coal  at 
lower  rates,  because  it  could  compensate  by  charging  higher 
rates  on  other  traffic  which  is  better  able  to  pay.  Under  a 
regime  of  competition  of  carriers,  therefore,  it  will  be  necessary 
to  differentiate  the  tolls  correspondingly  unless  the  present 
traffic  in  cheap  or  distant  goods  is  to  be  entirely  stopped.  The 
discriminations  represented  by  the  tolls  would  be  precisely 
equal  to  the  present  discriminations  in  the  total  rates.  To  fix 
the  tolls  by  law  would  not  mend  matters,  for  if  the  law  can  suc- 
cessfully fix  tolls,  it  can  equally  well  fix  the  total  charges  as 
imposed  at  present.  The  principle  involved  is  the  same.  But 
if  the  extent  of  tolls  is  left  to  the  discretion  of  the  railway  com- 
panies, then  the  condition  of  affairs  is  not  improved  a  whit. 
The  difficulties  of  regulation  according  to  a  well-digested  sys- 
tem would  not  be  diminished. 

But  thirdly,  it  is  very  probable  that  abuses  would  be  engen- 
dered far  worse  than  any  which  exist.  There  would  be  such  an 
evident  gain  in  the  larger  shippers  combining  to  lessen  running 
expenses  that  before  long  competition  would  again  forcedly 
result  in  combination.  This  would  practically  intensify  per- 
sonal discriminations.  The  large  shippers  might  through  com- 
bination reduce  the  charges  to  a  minimum,  and,  not  being 
common  carriers,  would  refuse  to  take  the  goods  of  the  smaller 
shippers.  The  latter  would  thus  be  put  at  an  immense  disad- 

1  Mr.  Hudson  proposes  equal  mileage  tolls  (Railways  and  the  Republic,  p.  397). 
But  the  impracticability  and  inadvisability  of  this  have  already  been  shown. 


72  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  IL 

vantage,  while  now  they  have  at  least  an  equal  right  to  insist 
on  transportation.  If  it  be  objected  that  the  small  shippers 
might  also  combine,  the  answer  is  that  the  practical  difficulties 
in  the  way  would  be  well-nigh  insuperable;  and  that  even  if 
they  were  overcome  we  should  no  longer  have  the  condition  of 
free  competition  between  the  carriers.  The  very  basis  of  the 
argument  would  fall  away. 

The  legitimacy  of  such  a  conclusion  is  emphasized  by  the 
history  of  the  English  railways.  For  there,  as  in  other  coun- 
tries, we  find  vestiges  of  an  arrangement  which  is  only  a  slight 
variation  of  the  scheme  proposed.  That  is,  although  we  do 
not  find  cases  of  competition  between  carriers  who  own  their 
locomotives,  there  have  been  instances  of  competition  between 
shippers  who  own  their  own  cars.  This  is  technically  known 
as  the  principle  of  separation  of  traction  and  carrier!  The  most 
striking  example  of  the  inadequacy  of  the  remedy  suggested  is 
seen  in  the  case  of  the  coal  companies.  Each  of  these  as  a 
rule  owned  its  own  cars.  Yet  the  result  of  the  competition  has 
been  the  building  up  of  a  few  gigantic  monopolies  to  the  ex- 
clusion of  the  smaller  shippers.  The  agglomerated  companies 
always  succeeded  in  procuring  better  facilities  in  the  way  of 
storage  of  coal,  etc.,  in  the  depots  than  the  isolated  small  ship- 
pers, and  the  inevitable  tendency  has  reasserted  itself.  So  far 
has  this  process  been  carried  as  to  practically  preclude  small 
shippers  from  sending  coal  without  the  consent  of  the  larger 
companies.2  Separation  between  motor  and  carrier  would  ag- 
gravate, not  diminish,  the  abuses. 

So  incisive  are  the  arguments  against  free  competition  of 
carriers  that  every  careful  scientific  investigation  of  the  question 
has  abundantly  proved  the  fruitlessness  of  the  scheme.  Already 
in  1839  an  English  committee  reported,  after  an  extensive  re- 
view of  the  facts,  that  such  a  plan  was  no  less  undesirable  than 
impracticable.3  In  1844  Gladstone's  committee  repeated  the 

1  Or  of  "  motor  "  and  carrier. 

2  Cf.  Royal  Commission  (1866),  Evid.  qu.  12,502-12,519;   ibid.  (1865),  qu.  9772 
et  seg.,  9853  et  seq.     Already  in  1853  we  find  the  same  tendency.     Cf.  Joint  Select 
Committee  (1853),  Fifth  Report,  pp.  201-206. 

3  Select  Committee  on  Railways  (1839),  Second  Report. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  73 

elaborate  refutation.1  But  the  attempt  to  enforce  this  competi- 
tion was  nevertheless  found  in  the  charters.  Cardwell's  com- 
mittee of  1853  still  discussed  the  project.2  But  from  that  time 
the  clauses  in  the  charter  were  regarded  as  mere  archaic  curiosi- 
ties. The  Duke  of  Devonshire's  commission  abandoned  the 
fiction  once  and  for  all.3  In  Chichester  Fortescue's  committee 
the  efforts  of  the  early  legislation  are  reviewed  with  a  grim  sar- 
casm;4 and,  finally,  in  Mr.  Ashley's  recent  committee  the 
whole  matter  is  not  even  deemed  worthy  of  separate  mention.5 

But  although  England  had  been  radically  cured  of  her  early 
misconceptions,  ignorance  of  English  experience  led  to  a  re- 
vamping of  the  old  doctrines  on  the  continent.  The  matter 
was  taken  up  at  the  close  of  the  sixties  in  Germany,  and  for 
several  years  would-be  reformers  and  even  economic  con- 
gresses sounded  the  praises  of  the  new  panacea.6  It  became, 
as  has  been  wittily  remarked,  the  enfant  terrible  of  the  railway 
question  in  Germany  and  Austria.  Thrown  out  of  one  window, 
it  came  bobbing  in  at  the  next.7  Book  after  book  was  written  to 
explain  the  advantages  of  the  system,  but  science  and  common- 
sense  again  triumphed,8  and  to-day  the  project  is  considered  as 
definitely  laid  to  rest.  Yet  scarcely  has  the  matter  been  finally 
decided  on  the  continent  when  we  are  called  upon  to  go  over 
the  same  tedious  ground  in  the  United  States.  Here  too  the 
plan  is  elaborately  set  forth9  with  a  naive  confidence  in  its 

1  Select  Committee  (1844),  p.  19,  Appendix  to  Evidence. 

2  Joint  Select  Committee  (1853),  Fifth  Report,  p.  8:  "In  theory  the  railway  is 
like  a  common  highway ;  in  practice,  no  one  can  carry  upon  a  railway  but  the  owners 
of  the  line." 

3  Royal  Commission  (1867),  Report,  §  7. 

4  "  Committees  and  commissioners,  carefully  chosen,  have  for  the  last  thirty  years 
clung   to  one  form  of  competition  after  another,"  etc.     Select  Committee  (1873), 
Report,  p.  xviii. 

8  Select  Committee  on  Railways  (Rates  and  Fares),  1882. 

6  Technically  known  as  "  Die  Freiheit  der  Schiene." 

7  Sax,  Die  Verkehrsmittel,  Bd.  II,  S.  112. 

8  Cf.  the  discussions  in  Reitzenstein,  Die  Gutertarife  der  Eisenbahnen  (1874), 
S.  42-59;   Perrot,  Die  Eisenbahnreform  (1871),  S.  34-47;   G.  Cohn,  Streitfragen  der 
Eisenbahnpolitik  (1874),  S.  17-32:  Bilinski,  Die  Eisenbahntarife  (1875),  S.  i^etseq. 

9  Hudson,  The  Railways  and  the  Republic  (1886),  ch.  x,  esp.  p.  400.     Mr.  Hud- 
son is  just  about  twenty  years  behind  the  times.     His  arguments  are  almost  word  for 
word  those  of  Dorn,  Aufgaben  der  Eisenbahnpolitik  (1874). 


3-U    de/u^*^e)      0^    MKO.    i  e^  'M>v^ 


4* 

74 


d    ( 

POLITICAL  SCIENCE  QUARTERLY,  [VOL.  II, 


novelty  and  efficacy  —  a  confidence  that  can  be  excused  only  on 
the  assumption  of  woful  ignorance  of  the  literature  or  absolute 
incapacity  to  learn  from  experience.  But  it  plainly  cannot  be 
the  duty  of  a  scientist  to  refute  in  detail  what  has  been  dis- 
proved time  and  time  again.  The  practical  character  of  the 
American  public,  moreover,  is  so  well  assured  as  to  render  the 
necessity  of  any  such  refutation  extremely  improbable. 

Another  variation  of  this  form  of  competition  deserves  a  pass- 
ing notice,  viz.,  the  demand  for  the  enforcement  of  running  pow- 
ers. This  theory  is  supposed  to  uphold  competition  by  allowing 
the  trains  of  any  one  railway  to  pass  over  the  tracks  of  the 
other.  The  English  Parliament,  after  having  abandoned  all  the 
other  theories  of  competition,  still  clung  to  this  ;  and  one  of  the 
main  features  of  Cardwell's  act  of  1854  was  an  attempt  to  real- 
ize this  idea.  In  the  United  States  also  it  is  advanced  as  a 
panacea.  But  Robert  Stephenson  already  in  1853  emphatically 
condemned  such  running  powers  as  incompatible  with  safety 
and  practical  administration.1  The  committee  of  1872  finally 
forsook  the  old  position  and  came  to  the  conclusion  that  in  all 
cases  where  running  powers  existed  they  were  the  result  of  vol- 
untary agreements.2  It  is  practically  impossible  to  compel  the 
railways  to  grant  such  powers  against  their  will,  and  if  it  were 
possible  it  would  not  be  wise.3  It  would  be  far  more  expensive 
and  dangerous,  and  it  would  put  a  check  to  all  railway  building 
by  powerful  capitalists,  for  it  would  render  the  quantity  of  traf- 
fic carried  by  any  one  line  absolutely  uncertain  and  subject  to 
the  discretion  of  the  government.  In  France,  likewise,  there 
have  been  repeated  attempts  to  enforce  these  running  powers, 
but  the  only  case  in  which  they  have  not  ignominiously  failed 
has  been  that  of  branch,  not  competing,  lines.4 

1  Select  Committee  on  Railway  and  Canal  Bills  (1853),  Evid.,  pp.  115,  1  1  6. 

2  Select  Committee  on  Railway  Cos.  Amalgamation  (1872),  Rep.,  pp.  xlv,  xlvi. 

8  Hudson,  Railways  and  the  Republic,  p.  382,  gives  a  few  familiar  examples  of  one 
track  being  used  jointly  by  two  railways.  But  that  is  quite  another  thing  from  allow- 
ing one  track  to  be  used  by  all  the  other  lines,  especially  if  the  first  one  does  not 
consent.  Voluntary  arrangements  are  not  enforceable  running  powers. 

4  Thus  in  the  revision  of  the  cahiers  de  charge  imposed  on  all  the  "  great  compa- 
nies "  in  1857-59  these  running  powers  were  reserved  to  all  branch  lines  and  prolonga- 
tions on  payment  of  a  fixed  droit  de  peage.  Cf.  the  documents  themselves,  litre  vi, 


No.  3.]  77/£  INTERSTATE  COMMERCE  LAW.  75 

But  the  most  amusing  error  remains  to  be  noticed.  Running 
powers  or  "working  arrangements  "  when  voluntary  are  just  the 
opposite  of  what  they  are  supposed  to  be.  In  lieu  of  being  a 
form  of  competition,  they  are  a  form  of  combination — the  fore- 
runner of  pools  and  frequently  their  concomitant.  The  railways 
agree  to  forward  traffic  over  each  other's  lines,  or  to  divide  the 
traffic  in  cases  where  they  use  the  same  line,  not  in  order  to 
maintain  competition  but  in  order  to  avoid  competition.  And  if 
enforceable  running  powers  were  universal,  they  would  simply 
result  again  in  private  agreements.  It  would  not  be  an  advance 
of  competition  but  a  check  to  competition.  Even  if  it  were  prac- 
ticable, it  would  simply  accelerate  the  process  which  it  was  de- 
signed to  arrest.  Compulsory  competition  is  an  absurdity.  For- 
tunately the  Interstate  Commerce  law  expressly  disclaims  all 
intention  of  enforcing  such  working  arrangements,1  although  it 
may  well  be  doubted  whether  the  legislators  were  actuated  by 
the  reasons  just  recounted.  The  prohibition  of  pools  militates 
against  the  acceptance  of  any  such  flattering  imputation. 

There  remains  finally  the  subject  of  water  competition.  In  so 
far  as  we  have  to  deal  with  artificial  waterways  the  same  unmis- 
takable tendency  to  combination  is  apparent.  The  competition 
of  canals  is  virtually  of  no  importance  as  the  regulator  of  rail- 
way charges.  In  the  first  quarter  of  this  century  the  charges 
on  the  English  canals  were  so  extortionate  and  the  abuses  so 
extravagant  that  great  hopes  were  staked  on  the  competition  of 
the  railways.  The  railways  indeed  did  compete  with  the  canals, 
but  so  effectually  as  to  silence  all  competition.  They  bought 
up  the  canals  or  amalgamated  with  them,  and  before  long  the 
condition  of  affairs  was  reversed.  New  canals  were  now  built 
to  compete  with  the  railways  in  place  of  new  railways  being 
built  to  compete  with  the  canals.  The  conditions  had  shifted. 
But  all  was  in  vain.  Already  at  an  early  period  the  rivalry  of 
the  canals  had  been  overcome;2  by  1872  the  influence  of  the 

art.  61,  in  Picard,  Chemins  de  fer  francais,  t.  iv,  p.  71.     As  to  the  difficulties  to  which 
even  this  has  given  rise,  see  Aucoc,  Droit  admiuistratif,  t.  iii,  pp.  779  et  seq. 

1  Cf.  sec.  3. 

2  In  1865,  of  the  four  thousand  miles  of  water  and  river  communication  in  Eng- 
land and  Scotland,  about  one-third  had  been  amalgamated  with  the  railways.     Royal 
Commission  (1867),  Rep.  App.  qu.  9899  et  seq. 


76  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

canals  as  competing  factors  was  infinitesimal.1     The  railways 
were  the  victors  ;  competition  had  again  failed. 

On  the  continent  the  condition  is  the  same.  Everywhere 
the  canals  have  been  losing  their  traffic.  Even  when  owned  by 
the  state,  their  efficacy  is  a  thing  of  the  past,  although  in  such 
cases  there  can  naturally  be  no  consolidation  with  the  private 
railways.2  Isolated  efforts  are  yet  made  to  further  the  con- 
struction of  new  canals,  but  the  better  opinion  now  recognizes 
the  ultimate  uselessness  of  such  attempts. 

Although  the  movement  has  not  progressed  quite  so  far  in 
the  United  States,  the  tendency  is  the  same.  From  1830  to 
1850  the  canals  were  formidable  competitors  of  the  railways, 
but  from  that  time  on  the  private  canals  were  gradually  bought 
up,  while  the  state  canals  were  either  abandoned,  sold,  or  re- 
duced to  a  state  of  utter  decrepitude.  The  efforts  of  the 
Clinton  league  in  New  York  were  unable  to  arrest  the  move- 
ment. In  1886  an  expert  witness  stated  to  the  Senate  com- 
mittee :  "I  do  not  think  that  there  is  a  canal  in  the  United 
States,  except  the  Erie,  that  is  not  more  or  less  controlled  by 
the  railroads."3  The  competition  of  artificial  waterways  can  no 
longer  be  relied  on. 

In  respect  to  natural  waterways  the  matter  is  slightly  differ- 
ent. The  sea  and  navigable  rivers  cannot  be  subjected  to  a 
monopoly.4  In  such  cases  the  competition  is  real  and  active, 
although  only  spasmodic  in  the  case  of  internal  navigation. 
The  importance  of  the  Erie  canal,  and  the  extent  to  which  it 
really  regulates  the  charges  by  rail,  is  due  solely  to  the  fact  that 

1  Select  Committee  (1872),  Rep.,  p.  xxix.    Also  pp.  xx-xxiv,  with  full  references  to 
the  evidence.     Cf,  in  general  the  admirable  work  of  Freiherr  von  Weber,  Die  Was- 
serstrassen   Nord-Europas    (1881),  S.  92-111.      Also  de  Franqueville,  Du  regime 
des  travaux  publics  en  Angleterre,  2me  ed.  (1875),  t.  ii,  pp.  274-306. 

2  Cf.  Nordling,  Die  Wasserstrassenfrage  in  Frankreich,  Preussen  und  Oesterreich 
(1885),  esp.  S.  28,  128,  158,  171-176.     A  French  translation  of  this  work  has  just 
been  published. 

3  Cullom  Committee  Report,  Test.  (Wistar)  507.     For  a  careful  investigation  of 
the  whole  question,  cf.  Mosler,  Die  Wasserstrassen  in  den  Vereinigten  Staaten  (1877). 
Much  valuable  material  may  be  found  in  Kupka,  Die  Verkehrsmittel  in  den  Vereinig- 
ten Staaten  (1883),  S.  41-126. 

4  Yet  in  England  there  are  instances  even  of  this.     Cf.  Select  Committee  (1872), 
Rep.,  pp.  xix,  xx.     Select  Committee  (1881),  Evid.  qu.  8133. 


•3~* 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  77 

it  is  a  link  in  the  chain  of  natural  waterways.  But  the  influ- 
ence of  internal  navigation  is  apt  to  be  seriously  exaggerated, 
and  the  exuberantly  enthusiastic  expressions  of  the  Cullom 
report  savor,  it  must  be  confessed,  slightly  of  rhodomontade.1 

Finally,  it  must  not  be  overlooked  that  water  competition,  in 
so  far  as  it  is  an  important  factor  in  internal  transportation,  is 
precisely  the  chief  cause  of  local  discriminations.  Differential 
rates  are  due  in  great  part,  as  we  have  seen,  to  the  existence  of 
competing  centres.  As  long  as  the  competition  exists  the  dis- 
criminations must  continue.  Hence  those  who  clamor  for  the 
construction  of  new  waterways  or  the  improvement  of  the  old 
may  indeed  succeed  in  effecting  a  reduction  of  charges,  but  for- 
get that  they  are  only  strengthening  the  causes  of  whose  results 
they  complain.  To  maintain  competition  and  avoid  discrimina-  / 
tion  is  impossible. 

The  chief  provisions  of  the  federal  law  have  now  been  dis- 
cussed. There  remains  to  be  considered  only  the  machinery  to 
enforce  the  law,  i.e.,  the  Interstate  Commerce  commission. 

The  commission  idea  is  essentially  a  product  of  the  Anglo- 
Saxon  mind.  On  the  continent  of  Europe  direct  administrative 
control  has  always  been  comparatively  stringent,  and  the  extent 
of  state  interference  has  been  conditioned  only  by  considerations 
of  a  political  nature.2  Almost  every  possible  system  has  been 
tried  ;  and  if  entire  immunity  from  abuses  has  not  been  attained, 

^-jpr 

it  is  not  for  lack  of  serious  endeavors  on  the  part  of  the  govern- 

1  "  The  manifest  destiny  of  our  country  points  unerringly  to  this  emancipation  of 
the  waters  as  its  next  great  work,  a  fitting  sequel  to  the  emancipation  of  the  slave,  a 
a  destiny  not  of  war,  but  of  beneficence  and  peace,  to  which  the  heart  of  the  nation 
turns  as  spontaneously  and  resistlessly  as  the  waters  of  its  great  river  flow  to  the  Gulf." 
Report,  p.  175.     Cf.  with  this  "manifest  destiny  "  the  figures  as  to  the  decadence  of 
the  Erie  canal  in  Statistics  regarding  the  Movement  of  Eastbound  and  Westbound 
Traffic  over  the  Trunk  Lines,  etc.  (1885),  pp.  16,  17 ;  also  Report  on  the  Internal  Com- 
merce of  the  United  States  (1885),  pp.  408-414.     The  Windom  Committee  likewise 
favored  government  canals.     But  the  value  of  their  suggestions  may  be  inferred  from 
the  fact  that  they  also  recommended  one  or  two  government  railways  to  regulate  the 
private  lines.     Senate  Select  Committee  on  Transportation  Routes  to  the  Seaboard, 
Report  (1874),  pp.  187-242. 

2  Weber,  Nationalitat  und  Eisenbahnpolitik  (1876).     Audiganne,  Les  Chemins  de 
fer  d'aujourd'hui  et  dans  cent  ans  (1858-1862). 


78  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

ments.  In  no  country  was  the  public  nature  of  the  railway 
business  lost  sight  of.  Even  where  financial  reasons  led  to  the 
construction  of  railroads  by  private  companies,  the  fostering  and 
restraining  action  of  the  public  authorities  was  never  absent. 
The  corporations  were  not  able  to  dictate  terms  to  the  state. 

In  England  the  history  was  quite  different.  The  railways, 
indeed,  started  out  as  humble  suppliants  for  favors,  but  govern- 
mental action  confined  itself  to  seemingly  guarded  restrictions 
in  the  charters,  such  as  maximum  clauses  and  limitations  of 
dividends,  all  of  which  were  soon  shown  to  be  utterly  powerless 
to  prevent  abuses.  The  railways  increased  so  rapidly  that  their 
position  soon  became  that  of  dictators,  in  place  of  suppliants. 
Warnings  of  able  men  like  Morrison  went  unheeded.1  Praise- 
worthy attempts  were  still  made  by  far-sighted  statesmen,  but 
the  railway  opposition  was  sufficiently  powerful  to  crush  all 
interference.  Lord  Seymour's  bill  of  1840  provided  for  the 
appointment,  by  the  Board  of  Trade,  of  railway  inspectors,  who 
should  have  the  right  to  "  remonstrate "  with  the  companies.2 
But  the  law  remained  a  dead  letter,  and  in  1842  Gladstone 
brought  in  another  bill  giving  the  Board  of  Trade  inspectors 
certain  compulsory  powers.3  This  law  was  not  more  successful 
than  its  predecessor,  and  finally,  as  the  outcome  of  the  great 
investigation  of  1844,  a  commission  was  appointed  within  the 
Board  of  Trade  and  put  in  activity  in  1845.  It  was  known  as 
Lord  Dalhousie's  Railway  board,  and  was  invested  with  extensive 
duties  of  examining  all  new  projects.  But  although  it  worked 
hard,  it  discountenanced  parallel  roads  and  thus  incurred  the 
hostility  of  the  railways  and  ultimately  the  jealousy  of  Parlia- 
ment itself.4  As  a  facetious  member  said,  it  attempted  to  do 
what  five  angels  could  not  accomplish ;  and  public  opinion  not 
coming  to  its  rescue,  it  was  abolished  ingloriously  the  same 
year.  Nothing  daunted,  however,  the  government  brought  in 

1  Cf.  James  Morrison,  Speech  in  House  of  Commons,  May  17,  1836;  id.,  The 
Influence  of  English  Railway  Legislation  on  Trade  and  Industry  (1848),  p.  86,  and 
App.,  pp.  107,  158. 

2  3  and  4  Viet.  c.  97,  An  act  for  regulating  railways. 

8  5  and  6  Viet.  c.  55,  An  act  for  the  better  regulation  of  railways,  etc. 
*  Cf.  Report  on  Railway  Companies'  Amalgamation  (1872),  p.  vii. 


t  t 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  79 

a  new  bill  constituting  the  Board  of  Railway  Commissioners, 
in  1846,  with  moderately  extensive  powers.1  But  the  railway 
interest  again  succeeded  in  robbing  the  bill  of  all  its  vitality,  so 
that  the  only  function  left  to  the  new  commission  was  "  inquiry 
and  publicity."  It  vegetated  for  five  years,  accomplishing  prac- 
tically nothing,  and  was  quietly  abolished  in  1851,  while  ail  its 
"extensive  powers"  were  re-transferred  to  the  Board  of  Trade. 
For  over  twenty  years  the  commission  idea  slumbered.  Card- 
well's  act  of  1854,  the  only  serious  attempt  at  governmental 
regulation  during  the  interim,  left  the  enforcement  of  its  pro- 
visions to  the  common  courts,  and  with  the  customary  results. 
It  was  not  until  1873  that  the  present  railway  commission  was 
finally  constituted.  But  although  its  activity  has  been  inces- 
sant and  the  number  of  cases  disposed  of  far  greater  than  those 
previously  adjudged  by  the  purely  legal  tribunals,  it  has  by  no 
means  achieved  an  unqualified  success.  The  manifold  com- 
plaints in  the  late  investigation  of  1881-82  and  the  proposals 
now  pending  to  reconstitute  and  strengthen  the  commission 
bear  ample  testimony  to  this  fact.  The  commission  is  practi- 
cally a  court  for  railway  cases,2  but  its  efficiency  has  been 
checked  in  three  ways.  Its  jurisdiction  is  limited,  its  procedure 
is  cumbrous  and  expensive,  and  its  powers  of  enforcing  judg- 
ment are  restricted.  Its  jurisdiction  is  limited,  with  a  few 
unimportant  exceptions,3  to  eases  arising  under  Cardwell's  act 
of  1854,  which  forbids  undue  preferences  and  requires  proper 
facilities.  The  commission  has  endeavored  to  widen  its  powers 
by  interpretation,  as,  e.g.,  in  the  case  of  transgression  of  the 


1  Accounts  and  Papers,  1846,  vol.  iii,  p.  277  ;  and  the  bill  as  passed  May  21,  in 
Accounts  and  Papers,  1847,  vo^  "*• 

'2  Of  the  three  members  and  two  assistants,  one  must  be  a  jurist.  In  questions  of 
fact  their  decision  is  nominally  final  ;  if  they  think  it  a  question  of  law,  then  they 
are  to  "  state  a  case  "  in  writing,  and  the  matter  goes  up  to  the  higher  court,  who  are 
either  to  decide  it,  or  to  give  their  opinion  as  to  the  law  and  send  the  case  back  to 
the  commission.  But  as  the  appellate  court  can  issue  a  writ  of  mandamus  compel- 
ling the  commission  to  "  state  a  case,"  the  decisive  power  does  not  rest  with  the  com- 
missioners. Cf.  Seventh  Report  Railway  Commission,  p.  3. 

3  Such  as  reasonableness  of  terminals,  enforcement  of  through  rates,  agreements 
with  canals,  etc.  36  and  37  Viet.  c.  48,  §§  8-n,  14-17.  For  list  of  cases  decided  up 
to  1882,  cf.  Select  Committee  (1881),  Rep.,  App.  no.  17,  pp.  68-79. 


80  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

charter  maxima,  but  in  this  it  has  ignominiously  failed.1  Hence 
it  cannot  dispose  of  all  complaints.  Secondly,  the  procedure  is 
unsatisfactory.  The  power  of  the  railways  is  so  great  that  the 
private  shippers  refrain  from  complaints  for  fear  of  reprisals. 
The  weapons  of  retaliation  in  the  hands  of  the  companies  have 
been  ruthlessly  employed.2  But  even  if  the  shipper  determines 
to  brave  the  opposition  of  the  railway,  the  expense  is  so  enor- 
mous as  to  induce  him  in  many  cases  to  let  the  litigation  drop.3 
The  usefulness  of  the  commission  is  thus  greatly  impaired. 
Finally,  the  means  of  enforcing  judgment  are  sadly  insufficient. 
The  decisions  of  the  commission  refer  only  to  the  future,  not  to 
the  past.  Its  "injunction"  does  not  enable  the  complainant 
to  recover  damages.  Furthermore,  the  companies  sometimes 
flatly  refuse  to  obey  the  decisions  until  finally  ratified  by  the 
appellate  courts,  and  even  then  they  frequently  contrive  to  evade 
the  judgment.4  The  English  corporations  are  far  less  amenable 
to  the  force  of  public  opinion  than  the  American.  In  short, 
although  arbitrary  personal  discriminations  are  comparatively 


1  Brown  vs.  Great  Western,  Eighth  Report  Railway  Commission,  p.  4  ;    App., 
74-77.     The  high  court  of  judicature  issued  a  writ  of  prohibition  against  the  com- 
mission.    Select  Committee  on  Railways  (1882),  p.  201.     In  Scotland  it  was  differ- 
ent.    Fifth  Report,  p.  8. 

2  "  A  man  must  be  very  chary  in  bringing  an  action  against  a  railway  company." 
Select  Committee  (1881),  Evid.  qu.  3745.     A  colliery  company  complained  of  over- 
charges, and  the  railway  refused  to  transport  the  coal  at  all.     Evid.  (1881),  pp.  138- 
142.     A  similar  case  arose  with  an  iron  company,  and  when  the  railway  was  com- 
pelled to  take  the  goods,  it  sent  them  at  such  inconvenient  times  and  added  so  many 
other  vexations  that  the  iron  company  was  compelled  to  compromise.     Ibid.,  pp.  2OO, 
237,  238.     A  firm  in  Bedford  complained  of  exorbitant  terminals,  and  the  railway 
retaliated  by  raising  the  rates  to  Bedford  more  than  one  hundred  per  cent,  and  not  to 
other  parts  of  the  line.     Ibid.,  p.  26.     A  brick  and  tile  manufacturer  complained  of 
the  rates,  and  the  railway  compelled  him  to  prepay  the  charges,  which  were  imme- 
diately raised  fifty  per  cent.     Evid.  (1882),  p.  220. 

3  A  local  board  spent  in  one  case  ^"2500,  and  then  abandoned  the  contest  for  lack 
of  funds.     Evid.  (1881),  p.  447. 

4  In  a  case  against  the  Great  North  of  Scotland  the  railway  company  was  de- 
feated after  a  stubborn  fight,  but  reduced  its  rates  only  to  the  particular  station  in 
question   and  continued  to  make  illegal  charges  to  all  the  other  stations.     A  sepa- 
rate suit  would  have  been  necessary  in  each  case.     Evid.   (1881),  p.  207.     In  the 
Neston   case   the   overcharges   were    continued   notwithstanding  a  decision  by  the 
appellate  court.  "There  is  no  power  to  enforce  obedience  to  the  law."   Evid.  (1881), 
qu.  3094,  and  pp.  140  et  seq. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  8 1 

rare,1  owing  to  the  greater  development  of  combination,  it  may 
well  be  doubted  whether  the  railway  commission  has  produced 
a  state  of  affairs  much,  if  at  all,  better  than  that  which  existed 
prior  to  its  inception.  The  new  bill  of  1887  emphasizes  the 
feeling  of  necessity  for  a  much  more  thoroughgoing  reform. 

In  the  United  States  the  commission  idea  has  two  independ- 
ent sources  —  the  Granger  movement  and  the  public  sentiment 
of  Massachusetts.  The  policy  of  the  American  commonwealths 
has  gone  through  three  phases  :  the  period  of  state  aid  and 
partial  regulation,  to  1845  or  1850;  the  period  of  laissez  faire, 
to  1870;  the  period  of  active  governmental  interference,  to  the 
present.  The  moderate  state  regulation  of  the  first  period  was 
due  to  the  supposed  analogy  between  railways  and  canals  or 
highways.  This  varied  naturally  with  the  different  sections 
of  the  country  —  from  the  railways  owned  and  managed  by  the 
state,  as  in  Georgia  and  Pennsylvania,  to  the  charter  regulations 
of  charges  in  New  York,  and  the  limitations  of  dividends  in 
New  England.  When  the  rates  were  fixed,  they  were  based 
on  the  canal  and  turnpike  tolls.  The  immoderate  state  aid  to 
railways,  again,  was  due  to  the  mania  for  internal  improvements 
during  the  thirties  and  forties.  The  scanty  legislation  of  this 
period  remained  in  great  part  unenforced  because  of  the  desire 
and  necessity  of  more  extended  means  of  communication,  and 
thus  the  commonwealth  gradually  ushered  in  the  second  phase 
of  the  development,  that  of  laissez  faire  and  unlimited  com- 
petition. The  system  of  special  charters  was  succeeded  by 
that  of  general  railroad  laws  which  exacted  only  a  few  formal- 
ities.2 Not  only  were  the  railways  left  to  themselves,  but  the 
belief  in  the  absolute  efficacy  of  unalloyed  competition  was  so 
strong  as  to  lead  to  a  logical  carrying  out  of  the  theory.  No 
parallel  or  competing  companies  were  authorized  to  consolidate.3 

1  But  they  still  occur.     Cf.  Evidence  (1881),  qu.  1730-1737,  where  one  shipper 
was  compelled  to  abandon  business.   As  to  allowance  for  quantity,  see  qu.  1 1,804  et  seq. 

2  So  in  New  York  the  law  of  1848,  and  finally  that  of  1850,  which  permits  any 
twenty-five  persons  to  form  a  company  and  file  its  articles  when  $1000  per  mile  is 
subscribed  and  $100  actually  paid  in.     So  in  Illinois  in  1849,  an<^  U1  the  other  states 
in  the  following  decade. 

3  The  railways  of  course  avoided  these  provisions  through  the  instrumentality  of 
leases  fur  long  periods. 


82  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

The  more  lines,  the  more  competition ;  the  more  competition, 
the  more  benefits  to  the  public  —  that  was  the  theory. 

The  results  of  this  policy  soon  became  apparent.  The  crisis 
of  1857  brought  disaster  on  the  country ;  but  other  causes,  like 
the  wild-cat  banks,  were  at  work,  besides  the  railways.  Then 
came  the  war,  which  silenced  all  discussion  for  a  time.  But 
with  the  close  of  the  war  and  the  advent  of  wild  railway  con- 
struction in  1867,  coupled  with  the  prodigious  development  of 
the  agricultural  interests,  the  fruits  of  this  unlimited  freedom 
were  seen.  A  system  of  the  most  reckless  swindling  and 
the  most  outrageous  discriminations  arose,  such  as  has  never 
existed  before  or  since  in  any  civilized  society.  The  corpora- 
tions regarded  themselves  as  purely  private  money-making 
enterprises,  and  seemed  not  to  have  the  faintest  conception  of 
any  duties  to  the  public.  In  the  West  the  abuses  were  further 
intensified  by  the  fact  of  absentee  ownership,1  so  that  the 
situation  became  intolerable.  In  response  to  repeated  demands 
for  redress,  the  railways  flatly  denied  the  right  of  the  state  to 
interfere  with  them  at  all.  Things  went  from  bad  to  worse. 

It  was  as  a  protest  against  this  attitude  that  the  Granger 
movement  arose.  The  National  Grange,  established  in  1867 
purely  as  a  means  of  mutual  improvement  and  protection  for 
the  farmers,2  was  soon  drawn  into  the  political  warfare  against 
the  railroads.  At  first  moderate  in  their  demands,  they  now 
became  extravagantly  violent  in  word  and  action.3  But  while 
the  Grangers  demanded  strict  regulation  they  still  believed  in 
the  saving  force  of  competition.  Failing  to  see  that  the  bad 
results  of  which  they  complained  were  due  to  prohibition  of 
combination,  they  made  the  prohibition  still  stronger.  They 
allowed  free  competition  between  the  roads,  and  then  hoped  to 

1  "The  whole  story  is  told  in  these  two  words  —  absentee  ownership.     While  the 
Western  patron  was  plundered,  the  Eastern   proprietor  was   robbed."     Report   of 
Illinois  Railroad  Commission  (1874),  p.  17. 

2  Cf.  Report  of  New  Jersey  Bureau  of  Statistics  of  Labor  (1886),  part  vi;   and 
Cloud,  Monopolies  and  the  People  (1873). 

3  At  the  general  convention  at  Springfield,  1873,  it  was  resolved  that  the  railways 
"  have  proved  themselves  of  as  arbitrary  extortion  and  opposed  to  free  institutions  as 
the  feudal  barons  of  the  Middle  Ages."    Other  favorite  phrases  were  "  money-sharks  " 
and  "  bloated  bondholders." 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  83 

legislate  away  the  results  of  free  competition.  Competition  was 
still  the  panacea.  That  the  railroads  did  not  act  justly  was 
their  fault ;  ergo,  said  the  Grangers,  enforce  free  competition 
and  prevent  by  legislation  the  perversion  of  the  principle. 
That  is,  they  attacked  the  problem  in  just  the  wrong  way  ;  they 
permitted  the  cause  to  remain,  and  hoped  to  remove  the  results ; 
and  in  this  they  necessarily  failed. 

The  hot-bed  of  the  movement  was  in  Illinois,  where  the  con- 
stitution of  1870  adopted  provisions  of  a  stringent  nature.  The 
law  of  1871  forbade  any  discriminations  at  all,  and  after  its  un- 
constitutionally had  been  proved,  was  followed  by  the  law  of 
1873  which  gave  the  commissioners  power  to  fix  rates.  Iowa, 
Minnesota,  Michigan,  Ohio,  Wisconsin,  followed  with  maximum, 
pro  rata,  and  short-haul  laws,  often  fixing  the  rates  or  giving 
the  commissions  absolute  and  mandatory  powers.1  But  the 
crudity  of  the  laws  was  shown  by  the  haste  with  which  they 
were  repealed.2  The  political  results  of  the  Granger  movement 
indeed  were  of  inestimable  importance  in  putting  an  end  to  the 
arrogant  pretensions  of  the  corporations  and  in  producing  the 
sweeping  decisions  which  finally  settled  the  power  of  the  states 
to  regulate  its  creatures.3  But  the  legal  question  was  one  thing ; 
the  economic  question  was  another.  The  Granger  movement 
was  economically  as  unwise  as  it  was  politically  important 
and  successful.  The  compulsory  commissions  were  an  avowed 
failure. 

Far  better  results  were  achieved  by  the  advisory  or  super- 
visory commissions,  of  which  Massachusetts  afforded  the  first 
and  most  successful  example.  As  Charles  Francis  Adams  him- 
self declares,  it  hit  upon  the  correct  method  of  legislative  con- 
trol by  what  was  at  the  time  nothing  but  a  "happy  guess."4 

1  For  these  various  laws  (Iowa  1874,  Minn.   1871,  Mich.  1871,  Ohio  1873,  Wis. 
1874),  see  Cullom  Rep.,  pp.  71-74,  98-102,  109-111,  119,  135-137. 

2  Minn.  1875,  Wis.  1876,  Iowa  1878.     In  Michigan  and  Ohio  the  laws  were  not 
enforced.     In  Illinois  the  powers  of  the  commission  were  not  used  after  the  decision 
of  the  Granger  cases.     Cf.  my  preceding  article,  POLITICAL  SCIENCE  QUARTERLY, 
June,  1887,  pp.  245,  259  ;   or  this  essay,  pp.  23,  27. 

3  Mun  vs.  Illinois,  etc.,  4  Otto,  113-187.     Decided  in  1876. 

4  Cullom  Committee  Rep.,  Test.  p.  1202.      Cf.  State  Railroad  Commissions,  pub- 
lished by  The  Railroad  Gazette,  1883. 


84  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

Instituted  in  1869  without  extensive  powers,  it  gradually  con- 
centrated the  force  of  public  opinion  upon  each  particular  abuse, 
and  by  its  admirable  reports,  lucid  explanations,  and  impartial 
decisions  succeeded  in  producing  a  hitherto  unheard-of  harmony 
between  the  railways  and  the  public.1  Massachusetts  still  re- 
mains the  chief  type  of  advisory  commissions.  Many  other 
states,  and  notably  New  York  and  Iowa,  possess  commissions 
of  this  nature,  and  the  commissioners  themselves  object  to  any 
undue  extension  of  their  powers.2  Their  lack  of  authority  and 
the  support  of  a  vigorous  public  sentiment  have  been  the  secret 
of  their  success.  Even  the  Illinois  commission,  which  possesses 
the  authority  to  fix  rates,  has  voluntarily  adopted  the  Massa- 
chusetts principle  of  arbitration  as  more  efficacious,3  and  the 
Kansas  commission  has  made  use  of  its  discretionary  power  to 
place  a  very  liberal  interpretation  on  some  rather  stringent 
laws.4  The  chief  instances  of  compulsory  commissions  to-day 
are  to  be  found  in  the  South.  The  Georgia  commission  pro- 
mulgates from  time  to  time  a  standard  tariff,  but  it  uses  the 
authority  with  such  wide  discretion  as  to  preserve  the  interests 
of  the  railways.6  The  Alabama  commission  possesses  what  is 
virtually  the  French  power  of  homologation.  New  Hampshire 
is  the  only  northern  state  with  a  compulsory  commission ;  but 
the  complaints  were  so  few  that  the  rates  actually  in  force  were 
accepted  as  the  standard  rates.6 

The  Interstate  Commerce  commission  is  thus  in  accord  with 
the  better  experience  of  the  American  commonwealths,  in  that 

1  By  ch.  338  of  laws  of  1885,  the  board  was  given  powers  to  fix  rates  in  a  partic- 
ular case  ;   but  it  was  a  case  of  interstate  commerce,  and  thus  beyond  their  purview. 

2  As  to  New  York,  cf.  Report  of  Railroad  Com.  (1884),  p.  65;    (1885),  p.  xxxiv 
et  seq.     As  to  Iowa,  see  Report  Com.  (1884),  p.  43;    (1885),  P-  $&•     As  to  Illinois, 
see  Report  Com.  (1884),  Moore  vs.  111.  Central. 

3  Cf.  Report  of  its  chief  commissioner  in  Cullom  Test.,  734. 

4  Report  Kansas  Com.  1883,  p.  28. 

6  Eleventh  Rep.  Ga.  Com.  (1885),  p.  12;  Twelfth,  Thirteenth,  and  Fourteenth 
Reports  (1886),  p.  5. 

6  The  compulsory  commissions  to-day  are:  Ga.,  S.C.,  Ala.,  Tenn.,  Miss.,  Cal., 
N.H.  The  advisory  commissions  are :  Mass.,  N.Y.,  la.,  Wis.,  Minn.,  Mich.,  Col., 
Dak.,  Neb.,  Va.  In  Kan.,  111.,  Mo.,  and  Ky.,  the  powers  are  somewhat  broader,  but 
not  rigidly  exercised.  In  Conn.,  Me.,  Vt.,  R.I.,  O.,  the  duties  are  mainly  those  of 
inspection. 


No.  3.]  THE  INTERSTATE  COMMERCE  LAW.  85 

it  is  invested  with  only  moderate  powers.  It  may  investigate 
any  matter  falling  within  the  purview  of  the  act,  whether  the 
complaint  be  made  by  private  individual,  railway,  or  state  com- 
mission, or  it  may  institute  inquiries  on  its  own  motion  without 
any  complaint  whatever.  If  its  recommendations  are  not  ac- 
cepted by  the  common  carrier,  the  circuit  court,  and  ultimately 
the  supreme  court,  is  to  give  the  final  decision,  the  report  of  the 
commission  being  prima  facie  evidence  of  the  facts.  The  com- 
mission thus  has  only  discretionary,  not  absolute,  powers ;  and 
its  success  will  depend  largely  upon  the  character  of  its  decis- 
ions and  the  possibility  of  concentrating  public  sentiment  on 
the  question  at  issue.  Whether  it  will  attempt,  like  the  Eng- 
lish commission  of  1845,  to  do  "what  five  angels  could  not 
accomplish,"  is  perhaps  not  an  entirely  settled  point.  But  it  is 
safe  to  say  that  not  even  five  demigods  could  satisfactorily  adjust 
all  the  complaints  arising  on  150,000  miles  of  railroad. 

Our  conclusions  may  now  be  summarized.  The  federal  law 
contains  provisions  of  undoubted  value.  Among  these  the  en- 
forced publicity  of  tariffs  and  projected  uniformity  of  accounts 
deserve  the  heartiest  commendation.  Nothing  is  more  con- 
ducive to  strict  impartiality  toward  the  shippers  and  to  perfect 
integrity  toward  the  owners  than  the  consciousness  of  public 
accountability.  Secrecy  has  ever  been  the  father  of  duplicity 
and  favoritism.  No  one  indeed  can  be  legislated  into  righteous- 
ness, but  the  noonday  glare  of  open  responsibility  is  the  strongest 
possible  preventive  of  gross  injustice.  All  those  sections, 
therefore,  which  demand  publication  of  the  tariffs,  submission 
of  agreements,  and  eventual  uniformity  of  accounts,  must  be 
acknowledged  eminently  wise  provisions.  In  like  manner  the 
institution  of  a  commission  with  moderate  powers  to  serve  as  a 
medium  of  this  responsibility  and  as  an  interpreter  of  the  public 
demands  must  be  unqualifiedly  commended.  Mere  legislation 
is  impotent  without  a  proper  machinery  to  enforce  the  decrees, 
and  reliance  on  the  judicial  branch  of  the  government  has 
always  been  found  inadequate. 

Of   more   doubtful   value,   however,  are   the   clauses   which 


86  POLITICAL  SCIENCE  QUARTERLY.  [VOL.  II. 

attempt  to  ensure  equitable  charges.  The  definition  of  unjust 
discrimination  is  necessarily  so  vague  as  to  be  susceptible  of 
varied  interpretations.  In  itself  it  settles  nothing.  In  so  far 
as  preferential  rates  are  concerned,  the  law  is  guilty  of  a  grave 
mistake  in  prohibiting  pools.  The  crying  evil  of  railway  man- 
agement to-day  is  personal  discrimination.  No  mere  legislative 
penalties  will  successfully  abolish  this.  Pools  are  perhaps  not 
a  completely  satisfactory  solution  of  the  problem ;  although  as 
adjuncts  to  our  traffic  associations,  they  have  accomplished 
incalculable  good.  They  must  rather  be  regarded  as  a  tem- 
porary palliative,  as  a  step  in  the  onward  march  to  final  consoli- 
dation. But  their  prohibition  at  the  present  time  is  premature 
and  unwise,  and  unnecessarily  jeopardizes  the  success  of  the 
law.  The  underlying  principle  of  pools  —  that  of  checking 
undue  competition  and  ensuring  uniformity  of  rates  —  will 
undoubtedly  reappear  in  another  form,  most  probably  in  agree- 
ments to  give  adequate  "  differentials."  But  these  new  agree- 
ments will  be  still  more  deficient  in  stability  and  coercive 
power  than  were  the  pools,  and  the  ultimate  outcome  prom- 
ises to  be  a  more  complete  combination,  a  more  thoroughgoing 
frustration  of  the  competition  which  the  law  seeks  to  establish. 
Competition  is  the  handmaid  of  personal  discrimination. 

Finally,  the  curtailment  of  local  discriminations  through  the 
short-haul  clause  is  a  double-edged  sword.  It  is  intended  to 
benefit  the  public,  but  if  strictly  enforced  it  would  in  many 
cases  injure  the  public.  .  As  a  check  to  arbitrary  management 
and  the  systematic  disregard  of  less  favored  localities,  it  is 
indeed  defensible.  But  the  important  factors  of  water  and 
foreign  competition  and  long  distance  traffic  must  not  be  over- 
looked. As  long  as  these  exist,  local  discriminations  will  be 
absolutely  necessary.  The  mere  claim  that  existing  business 
relations  have  been  built  up  through  the  medium  of  differential 
rates  and  that  their  abolition  would  throw  all  trade  into  confu- 
sion, is  not  a  sufficiently  valid  reason  to  oppose  the  law.  For  if 
these  differential  rates  are  unjust,  even  temporary  distress  can- 
not be  pleaded  as  an  excuse  for  continued  injustice.  But  it  has 
been  shown  that  certain  local  discriminations  are  not  unjust. 


No.  3.]         THE  INTERSTATE  COMMERCE  LAW.  87 

Value  of  service  as  a  subordinate  principle  justifies  carefully 
guarded  infractions  of  the  short-haul  clause.  Without  these 
infractions  we  would  soon  attain  the  double  result  of  ruin- 
ing the  railways  in  favor  of  their  water  competitors  and  of 
voluntarily  abdicating  the  advanced  position  which  improved 
means  of  transportation  have  given  us.  Each  section  of  the 
country  would  be  separated  from  the  rest  by  the  strongest  of 
mutually  protective  tariffs.  Either  the  commission  must  fre- 
quently relax  the  rule,  or  it  must  so  liberally  construe  the  clause 
as  to  permit  wide  local  discriminations  in  specific  cases.  The 
latter  policy  has  fortunately  been  already  initiated  by  the 
opinion  in  the  Louisville  and  Nashville  case.  Otherwise  it 
would  have  needed  but  little  foresight  to  predict  grave  incon- 
venience to  the  public  and  a  speedy  repeal  of  the  law. 

The  Interstate  Commerce  act  thus  contains  some  serious 
blunders  in  the  midst  of  many  wise  provisions.  But  on  the 
whole,  it  is  a  cheering  sign  of  the  determination  to  grapple 
with  evident  evils.  To  conclude  that  it  will  at  once  remove 
the  chief  abuses  would  be  far  too  optimistic.  The  condition 
of  affairs  will  in  most  respects  remain  very  much  as  it  was. 
Personal  discriminations  at  this  moment  are  little,  if  at  all,  less 
frequent  than  before  the  passage  of  the  law,  and  they  will  not 
be  stopped  by  legislative  authority.  The  main  hope  for  the 
future  lies  in  the  further  elaboration  of  the  railway  federations 
or  traffic  associations,  to  which  most  of  the  advance  thus  far 
made  is  ascribable,  and  whose  complete  history,  never  yet  told, 
I  must  reserve  for  another  time  and  place.  Their  importance, 
both  past  and  present,  has  been  phenomenally  neglected.  But 
the  value  of  the  Interstate  Commerce  law  lies  in  the  fact  that 
it  for  the  first  time  in  our  history  subjects  the  railways  to 
national  supervision,  and  that  it  is  designed  to  enforce  a 
publicity  and  responsibility  which  are  the  prerequisites  to 
all  healthy  reform.  The  federal  law  is  a  tentative  step,  but 
a  step  in  the  right  direction.  It  embodies  the  expression  of 
a  principle  which  is  destined  to  remain  and  which  is  capable 
of  a  fruitful  development.  On  this  account  it  deserves  a 

hearty  welcome. 

EDWIN  R.  A.  SELIGMAN. 


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